[PDF] Optimal Transfer Pricing In A Vertically Related And Imperfectly Competitive Market eBook

Author : Winston W. Chang
Publisher :
Page : 32 pages
File Size : 34,57 MB
Release : 2016
Category :
ISBN :

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The objective of this paper is to find the significant factors that crucially affect a firm's optimal transfer pricing policy. To achieve such a goal, it suffices to examine three minimalist vertical models: the first one contains a vertically integrated monopoly in both input and output markets, the second one consists of a vertically integrated firm that monopolizes an intermediate input for its own and rival's downstream divisions, and the third one comprises two vertically integrated firms competing in a final goods market. Four modes of competition are considered: Cournot, Bertrand, Stackelberg quantity and Stackelberg price. The paper shows that the optimal transfer pricing policy depends on four specifications: the vertical structure, the production technology, the demand characteristics and the competition mode. It finds numerous patterns on optimal transfer pricing: for example, under the same demand structure and competition mode, the two vertical models can yield diametrically opposite transfer pricing strategies; within a given vertical model, different competition modes may yield the same or different optimal strategies; and within a given competition mode, the four possible pairings of ordinary substitutes/complements on the demand side and strategic substitutes/complements on the firm side can also produce quite different results. In addition, the paper illustrates how the optimal transfer pricing policy is affected when the additional factors of income tax and tariff distortions are considered. With all the significant factors affecting the optimal transfer pricing delineated, the paper has laid a foundation for further studies in transfer pricing under more general structures. An important implication of our results is that the optimal transfer pricing policy may not be simply determined by the common practice of shifting profits from high- to low-tax jurisdictions.

Author : Erik Wintzer
Publisher : GRIN Verlag
Page : 61 pages
File Size : 36,16 MB
Release : 2007-08
Category : Business & Economics
ISBN : 3638698106

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Diploma Thesis from the year 2003 in the subject Business economics - Accounting and Taxes, grade: 2,0 (B), Schmalkalden University of Applied Sciences (Economics), course: Cost Pricing und Controlling, 121 entries in the bibliography, language: English, abstract: Globalization of business has replaced the concept of national exchanges with global transactions. Consequently, the changes due to globalization play a big role in the strategy of multinational enterprises. The volume of intrafirm trade is huge and expanding rapidly as multinationals globalize their investment and trade. Today, a considerable proportion of world trade takes place within multinational enterprises. This indicates the importance of transfer pricing conspicuously. The intention of this book is to describe the challenge of transfer pricing holistically and to exhibit some options for multinational enterprises determining their transfer prices. While management accounting as well as strategic aspects of transfer prices are also relevant for enterprises, which are not multinational, external aspects (specifically tax accounting) are typically only crucial for multinationals. This book is an attempt to integrate all aspects of transfer pricing targeting practitioners as well as economists.

Author : Winston W. Chang
Publisher :
Page : 0 pages
File Size : 48,99 MB
Release : 2016
Category :
ISBN :

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The objective of this paper is to find the key factors that affect a firm's optimal transfer pricing policy. It examines two minimalist vertical models -- one consisting of a vertically integrated firm monopolizing an intermediate input for its own and rival's downstream division, and the other comprising two vertically integrated firms competing in a final goods market. Four modes of competition are considered -- Cournot, Bertrand, Stackelberg quantity and price. The paper shows that, in addition to the usual tax considerations, the optimal transfer pricing policy depends on competition mode, demand and strategic characteristics, vertical structure, and production technology. For example, under the same demand structure and competition mode, the two models can yield diametrically opposite outcomes; within a given vertical model, different competition modes may yield different optimal strategies; and within a given competition mode, the four pairings of ordinary substitutes/complements and strategic substitutes/complements can also produce quite different results. The general structure analyzed in this paper can be applied to other transfer pricing models involving uncertainty, cost sharing, asymmetric information, etc. that have been mainly studied in the literature under specific competition modes and demand and strategic characteristics.

Author : Robert F. Göx
Publisher :
Page : 29 pages
File Size : 26,76 MB
Release : 2000
Category :
ISBN :

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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 behave as softer competitors on the final product market. When transfer prices are not observable, strategic transfer pricing is not an equilibrium, and the optimal transfer price equals the market price of the intermediate product. As an alternative, the firms can signal their competitor a transfer price above the market price of the intermediate input through a proper choice of their accounting system. The paper identifies conditions under which the choice of absorption costing is a dominant strategy for both firms. Moreover, when the firms' products are close substitutes, the strategic benefits of full cost based transfer pricing can provide incentives to maintain a production department that would not be able to survive as a separate firm in the long run.

Author : Tomas Buus
Publisher :
Page : 7 pages
File Size : 41,38 MB
Release : 2010
Category :
ISBN :

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Both older and recent literature on transfer pricing is not unified about the opinion whether optimal transfer price should be equal to marginal cost of supplying company and set by centralized decision (of vertically integrated multibusiness enterprise headquarters) or whether it should be set by negotiation or even set on level of market (arms-length) price. Those, who argue for setting transfer price by negotiation or at the market price base their arguments on market imperfections like information asymmetry, motivation of managers, et cetera. This paper deals inter alia with problem of methodology transfer pricing mathematical modelling. We prove that optimal transfer price should be equal to average cost of the supplying division plus part (or whole) economic profit of the multibusiness enterprise (hereinafter ldquo;MBErdquo;), independent on the market conditions at the market of either intermediate or final product. Setting transfer price on the level of marginal cost is inefficient and would earlier or later lead to loss of MBE's ability to compete its rivals.

Author : Khalid Sekkat
Publisher : Edward Elgar Publishing
Page : 200 pages
File Size : 19,81 MB
Release : 2006-01-01
Category : Political Science
ISBN : 9781781958254

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This book analyses the vertical relationships of firms in an international context. These relationships, Khalid Sekkat argues, have gained further relevance due to the notable increase in vertical specialization of production across borders in the past few years.

Author : Tim Baldenius
Publisher : Now Publishers Inc
Page : 107 pages
File Size : 27,85 MB
Release : 2009
Category : Business & Economics
ISBN : 1601982704

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Internal Pricing surveys of the transfer pricing literature with a focus on commonly-used pricing schemes using incomplete contracting models. Chapter 2 develops the basic symmetric information model to compare the performance of cost-based and negotiated pricing in the absence of external input markets. Chapter 3 considers market-based pricing and the role of internal price adjustments; it ignores investments and focuses solely on trading incentives. Chapter 4 adds investments to the model of Chapter 3 and shows that investment opportunities further strengthen the case for internal adjustments. Chapter 5 reconsiders the initial analysis of Chapter 2 for the case of asymmetrically informed divisional managers. The book ends with the author's conclusions and an appendix including the mathematical proofs. A key theme running through Internal Pricing is that the firm's central office (i.e headquarters) plays a rather limited role in mediating individual transactions. This captures the stylized empirical fact that in most firms, headquarters designs the broad "rules of the game" by choosing a pricing mechanism and compensation contracts, but usually does not get involved in pricing on a product-by-product basis.

Author : Timothy F. Bresnahan
Publisher : University of Chicago Press
Page : 508 pages
File Size : 15,18 MB
Release : 2008-04-15
Category : Business & Economics
ISBN : 0226074188

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New goods are at the heart of economic progress. The eleven essays in this volume include historical treatments of new goods and their diffusion; practical exercises in measurement addressed to recent and ongoing innovations; and real-world methods of devising quantitative adjustments for quality change. The lead article in Part I contains a striking analysis of the history of light over two millenia. Other essays in Part I develop new price indexes for automobiles back to 1906; trace the role of the air conditioner in the development of the American south; and treat the germ theory of disease as an economic innovation. In Part II essays measure the economic impact of more recent innovations, including anti-ulcer drugs, new breakfast cereals, and computers. Part III explores methods and defects in the treatment of quality change in the official price data of the United States, Canada, and Japan. This pathbreaking volume will interest anyone who studies economic growth, productivity, and the American standard of living.

Author : Robert Bork
Publisher :
Page : 536 pages
File Size : 11,40 MB
Release : 2021-02-22
Category :
ISBN : 9781736089712

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The most important book on antitrust ever written. It shows how antitrust suits adversely affect the consumer by encouraging a costly form of protection for inefficient and uncompetitive small businesses.