infonet-economy

This paper compares the performance of transfer pricing and tidy cost allocations in a multiproduct firm in presence of output market competition and production externalities. In absence of competition, tidy cost allocations are creating inefficient allocations within the firm while transfer prices can always be adjusted to replicate the first best solution of the centralized firm....

This paper analyzes the use of transfer pricing as a strategic device in divisionalized firms facing duopolistic price competition. When transfer prices are observable, both firms' headquarters will exclude their marketing division from the external input market and charge a transfer price above the market price of the intermediate product to induce their marketing managers to...