Pricing Internal Trade to Get a Leg up on External Rivals

Pricing Internal Trade to Get a Leg up on External Rivals The pricing of transfers from parent to subsidiary is an oft‐explored issue. Linking the cost of internal transfers with external market prices is one common approach, typically justified when the market for the good is perfectly competitive. This paper shows that imperfect competition may also justify market‐based transfer prices. Concern that transfer price will deviate from marginal cost and thereby distort subsidiary choices can lead a parent to undertake actions to influence the market price of the upstream good. Such efforts can provide a desirable strategic posture in the upstream market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economics & Management Strategy Wiley

Pricing Internal Trade to Get a Leg up on External Rivals

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Publisher
Wiley
Copyright
© 2008, The Author(s) Journal Compilation © 2008 Wiley Periodicals, Inc.
ISSN
1058-6407
eISSN
1530-9134
D.O.I.
10.1111/j.1530-9134.2008.00192.x
Publisher site
See Article on Publisher Site

Abstract

The pricing of transfers from parent to subsidiary is an oft‐explored issue. Linking the cost of internal transfers with external market prices is one common approach, typically justified when the market for the good is perfectly competitive. This paper shows that imperfect competition may also justify market‐based transfer prices. Concern that transfer price will deviate from marginal cost and thereby distort subsidiary choices can lead a parent to undertake actions to influence the market price of the upstream good. Such efforts can provide a desirable strategic posture in the upstream market.

Journal

Journal of Economics & Management StrategyWiley

Published: Sep 1, 2008

References

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