The double marginalization problem of transfer pricing: Theory and experiment
AbstractIn this paper, we find that the idea of using optional two-part tariffs as a basis for tariff renegotiations in a bilaterally monopoly setting is a solution to the double marginalization problem that theoretically (1) creates a stable equilibrium, (2) at the overall efficient level, (3) without the presence of a central management. Through experimental testing, we find that the efficiency of this mechanism is significantly higher than the efficiency of simple direct negotiation, both under symmetrically and asymmetrically distributed information.
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Bibliographic InfoArticle provided by Elsevier in its journal European Journal of Operational Research.
Volume (Year): 196 (2009)
Issue (Month): 2 (July)
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Web page: http://www.elsevier.com/locate/eor
Pricing Transfer pricing Experiment;
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