A game-theoretic approach to transfer pricing in a vertically integrated supply chain

Rosenthal, Edward C.

doi:10.1016/j.ijpe.2008.05.018

Cited by 59 publications

(27 citation statements)

References 19 publications

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“…They establish a model that integrates many factors, such as transport costs and duty drawbacks, which are critical for supply chains that operate under international trade regulations. Rosenthal (2008) studies the problem of setting transfer prices in a vertically integrated supply chain, in which the divisions share technology and transactions costs. He develops a cooperative game that provides transfer prices for the intermediate products in the supply chain, providing a solution that is fair and acceptable to all divisions.…”

Section: Introductionmentioning

confidence: 99%

Cost-based transfer pricing under R&D risk aversion in an integrated supply chain

Matsui

2012

International Journal of Production Economics

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a b s t r a c tThis paper examines the economic role of transfer pricing for a vertically integrated supply chain when a risk-averse production-division manager faces uncertainty on the outcomes from R&D investment. In particular, we compare two representative cost-based transfer pricing methods: full-cost and variablecost pricing. We construct an economic model based on the assumption that R&D investment reduces the expected fixed costs of a production factor as well as the variable production costs. We show that a firm's profit under full-cost transfer pricing is greater than that under variable-cost transfer pricing under certainty. Contrary to this benchmark result, variable-cost pricing becomes more profitable than full-cost pricing when the risk-averse manager bears relatively high risk.

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Section: Introductionmentioning

confidence: 99%

Cost-based transfer pricing under R&D risk aversion in an integrated supply chain

Matsui

2012

International Journal of Production Economics

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“…Gjerdrum et al (2002) adopt a mixed integer non-linear programming model with Nash bargaining solution to examine transfer pricing in a two-enterprise supply chain. Rosenthal (2008) examines the influence of transfer price in a vertically integrated supply chain.…”

Section: Literature Reviewmentioning

confidence: 99%

Profit Transferring of Multinational Enterprises in the Chinese Industry by Transfer Pricing

Sun¹,

Li²,

Zheng³

2017

Proceedings of the International Conference on Transformations and Innovations in Management

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Decentralized enterprises, such as multinational enterprises (MNEs), adopt transfer prices to coordinate the strategies of the operating functional divisions and marketing divisions in a multinational environment. This paper analyzes the existence of profit transfer though transfer pricing among MNEs in China, and employs quantitative analysis to evaluate the amount of profit that is transferred by this mechanism in the Chinese industry. The contradiction between MNEs' abundant advantages of operating in China and their abnormal low profit margins indicate the existence of profit transfer behavior. The quantitative analysis shows that in the industry, there is more than 300 billion yuan, one fifth of their net profit, transferred yearly outside China and causes 4.9% decline of the total net profit of the Chinese industry from 2012 to 2015.

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“…Amershi and Cheng (1990), Besanko and Sibley (1991) as well as Ronen and Balachandran (1988) solved the problem of transfer pricing considering that divisions are implicitly or explicitly subcontractors and with divisions paying a transfer price and incurring production costs. Rosenthal (2008) developed a cooperative game that provides transfer prices for the intermediate products (when valuation is known and when their valuations differ) in a vertically integrated supply chain, providing a solution that is fair and acceptable to all divisions. Leng and Parlarb (2012) extended the work of Rosenthal (2008), constructing a cooperative game based on computing the Shapley value-based transfer prices for a vertically integrated supply chain firm with an upstream division and multiple downstream divisions, which can independently determine their retail prices, and decide whether or not they will purchase from the upstream division at negotiated transfer prices.…”

Section: 1mentioning

confidence: 99%

“…The proposed model is as follows (Rosenthal, 2008). We consider a multidivisional firm, which is a vertically integrated supply chain.…”

Section: Transfer Pricing Modelmentioning

confidence: 99%

Negotiating transfer pricing using the Nash bargaining solution

Clempner

Poznyak²

2017

International Journal of Applied Mathematics and Computer Science

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This paper analyzes and proposes a solution to the transfer pricing problem from the point of view of the Nash bargaining game theory approach. We consider a firm consisting of several divisions with sequential transfers, in which central management provides a transfer price decision that enables maximization of operating profits. Price transferring between divisions is negotiable throughout the bargaining approach. Initially, we consider a disagreement point (status quo) between the divisions of the firm, which plays the role of a deterrent. We propose a framework and a method based on the Nash equilibrium approach for computing the disagreement point. Then, we introduce a bargaining solution, which is a single-valued function that selects an outcome from the feasible pay-offs for each bargaining problem that is a result of cooperation of the divisions of the firm involved in the transfer pricing problem. The agreement reached by the divisions in the game is the most preferred alternative within the set of feasible outcomes, which produces a profit-maximizing allocation of the transfer price between divisions. For computing the bargaining solution, we propose an optimization method. An example illustrating the usefulness of the method is presented.

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A game-theoretic approach to transfer pricing in a vertically integrated supply chain

Cited by 59 publications

References 19 publications

Cost-based transfer pricing under R&D risk aversion in an integrated supply chain

Cost-based transfer pricing under R&D risk aversion in an integrated supply chain

Profit Transferring of Multinational Enterprises in the Chinese Industry by Transfer Pricing

Negotiating transfer pricing using the Nash bargaining solution

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