Strategic Transfer Pricing, Absorption Costing and Vertical Integration

Strategic Transfer Pricing, Absorption Costing and Vertical Integration
Author: Robert F. Göx
Publisher:
Total Pages: 29
Release: 2000
Genre:
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.

Strategic Transfer Pricing, Absorption Costing, and Observability

Strategic Transfer Pricing, Absorption Costing, and Observability
Author: Robert F. Göx
Publisher:
Total Pages:
Release: 2000
Genre:
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 charge a transfer price above the marginal cost 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 marginal cost of the intermediate product. As a strategic alternative, however, the firms can signal the use of transfer prices above marginal cost to their competitors by publicly observable commitment to an absorption costing system. The paper identifies conditions under which the choice of absorption costing is a dominant strategy equilibrium.Key Words: transfer pricing; Absorption costing; Product pricing.

Transfer Pricing

Transfer Pricing
Author: Morten Jakobsen
Publisher:
Total Pages:
Release: 2001
Genre:
ISBN:

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Transfer Pricing for Multinational Enterprises. An Integrated Approach

Transfer Pricing for Multinational Enterprises. An Integrated Approach
Author: Erik Wintzer
Publisher: GRIN Verlag
Total Pages: 61
Release: 2007-08
Genre: 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.

Transfer Pricing

Transfer Pricing
Author: Ralph L. Benke (Jr.)
Publisher: Institute of Management Accountants
Total Pages: 172
Release: 1980
Genre: Business & Economics
ISBN:

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Optimal Transfer Pricing in a Vertically-Related and Imperfectly Competitive Market

Optimal Transfer Pricing in a Vertically-Related and Imperfectly Competitive Market
Author: Winston W. Chang
Publisher:
Total Pages: 32
Release: 2016
Genre:
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.

Strategic Transfer Pricing and Social Welfare Under Product Differentiation

Strategic Transfer Pricing and Social Welfare Under Product Differentiation
Author: Kenji Matsui
Publisher:
Total Pages: 0
Release: 2010
Genre:
ISBN:

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In this paper, we investigate the social impacts of strategic transfer pricing by oligopoly firms, aiming to derive regulatory implications for transfer prices. A notable finding from our model is that the negative effects on social welfare of transfer prices being set above marginal cost are pronounced when either (1) the number of competing firms is large and the product is relatively highly differentiated or (2) the number of firms is small and the product is not very differentiated. This result indicates that even when the number of firms in the industry is significant and the market is thus apparently competitive, the authorities should not overlook the possibility that setting transfer prices above marginal cost might seriously damage social welfare if the product is highly differentiated.

The Transfer Pricing Problem

The Transfer Pricing Problem
Author: Robert G. Eccles
Publisher: Free Press
Total Pages: 376
Release: 1985
Genre: Business & Economics
ISBN:

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Author explores the transfer pricing policies. On the beginning, he identifies the elements of administrative process that are crucial for managing the transfer pricing in corporate practice. Furthermore, he examines the management challenges of the most common transfer pricing policies. Finally, he presents general framework for strategy implementation that is designed to help managers to analyse their own company transfer pricing practices.

Transfer Pricing

Transfer Pricing
Author: Philip W. Carmichael
Publisher: Wiley
Total Pages: 0
Release: 2025-07-01
Genre: Business & Economics
ISBN: 9781119157113

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Improve corporate profits through alternative transfer pricing strategies Transfer Pricing: Alternative Practical Strategies presents a case study based upon a fictional company to showcase the preparation of a transfer pricing study that meets regulatory needs. This case study focuses on three alternative strategies to transfer pricing: advance pricing agreements, cost sharing agreements, and the use of joint ventures. The advance pricing section considers the factors to take into account when deciding whether this is the right approach, and details the elements that impact the steps you take at each stage of the APA process, such as the prefiling conference, application submission, and more. The section on cost sharing arrangements presents methods for developing and documenting a qualified cost sharing arrangement, as well as buy-in and buy-out payments, international acceptance of cost sharing arrangements, and more. Finally, the international joint ventures section analyzes, among other things, key tax planning issues, such as sham treatment, taxation of operating income, etc. Transfer pricing is the process of pricing goods or services that are being sold within an entity—either between company divisions or departments or between a parent company and a subsidiary. The right transfer pricing model can prove profitable for your organization. Explore which alternative methods—advance pricing agreements, cost sharing agreements, or joint ventures—are best for your business Access information that guides you in improving corporate profits through targeted transfer pricing methodology Consider new ideas in context through a case study that applies presented concepts to a fictional company Leverage an ancillary test bank to reinforce key ideas Transfer Pricing: Alternative Practical Strategies gives you an overview of what transfer pricing is, and offers three strategies that you can leverage to improve corporate profits when determining transfer pricing models.