IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v196y2009i2p434-439.html
   My bibliography  Save this article

The double marginalization problem of transfer pricing: Theory and experiment

Author

Listed:
  • Lantz, Björn

Abstract

In 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.

Suggested Citation

  • Lantz, Björn, 2009. "The double marginalization problem of transfer pricing: Theory and experiment," European Journal of Operational Research, Elsevier, vol. 196(2), pages 434-439, July.
    • Handle: RePEc:eee:ejores:v:196:y:2009:i:2:p:434-439
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377-2217(08)00357-3
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Economides, Nicholas, 1999. "Quality choice and vertical integration," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 903-914, August.
    2. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
    3. David Sibley, 1989. "Asymmetric Information, Incentives and Price-Cap Regulation," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 392-404, Autumn.
    4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    5. Dejong, Douglas V. & Forsythe, Robert & Kim, Jae-Oh & Uecker, Wilfred C., 1989. "A laboratory investigation of alternative transfer pricing mechanisms," Accounting, Organizations and Society, Elsevier, vol. 14(1-2), pages 41-64, January.
    6. Jack Hirshleifer, 1956. "On the Economics of Transfer Pricing," The Journal of Business, University of Chicago Press, vol. 29, pages 172-172.
    7. Ronen, J & Mckinney, G, 1970. "Transfer Pricing For Divisional Autonomy," Journal of Accounting Research, Wiley Blackwell, vol. 8(1), pages 99-112.
    8. Avila, Marcos & Ronen, Joshua, 1999. "Transfer-pricing mechanisms: An experimental investigation," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 689-715, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Matsui, Kenji, 2011. "Intrafirm trade, arm's-length transfer pricing rule, and coordination failure," European Journal of Operational Research, Elsevier, vol. 212(3), pages 570-582, August.
    2. Kuang, Zhonghong & Lian, Zeng & Lien, Jaimie W. & Zheng, Jie, 2020. "Serial and parallel duopoly competition in multi-segment transportation routes," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
    3. Mujawamariya, Gaudiose & Burger, Kees & D'Haese, Marijke F.C., 2012. "Behaviour and performance of traders in the gum arabic supply chain in Senegal: Investigating oligopsonistic myths," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126236, International Association of Agricultural Economists.
    4. Oliveira, Fernando S. & Ruiz, Carlos & Conejo, Antonio J., 2013. "Contract design and supply chain coordination in the electricity industry," European Journal of Operational Research, Elsevier, vol. 227(3), pages 527-537.
    5. Simeng Wang & Yongsheng Cheng & Xiaoxian Zhang & Chenchen Zhu, 2020. "The Implications of Vertical Strategic Interaction on Green Technology Investment in a Supply Chain," Sustainability, MDPI, vol. 12(18), pages 1-14, September.
    6. Changwen Li & Bin Cao & Yong-Wu Zhou & T. C. Edwin Cheng, 2023. "Pricing, coalition stability, and profit allocation in the pull assembly supply chains under competition," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 45(3), pages 977-1011, September.
    7. S. Zverovich, 2009. "The Transfer Pricing Problem with Non-Linearities," Papers 0903.3346, arXiv.org.
    8. Chen, Yuwen & Karamemis, Gulver & Zhang, Jiayuan, 2021. "A Win–Win strategy analysis for an original equipment manufacturer and a contract manufacturer in a competitive market," European Journal of Operational Research, Elsevier, vol. 293(1), pages 177-189.
    9. Matsui, Kenji, 2014. "Gray-market trade with product information service in global supply chains," International Journal of Production Economics, Elsevier, vol. 147(PB), pages 351-361.
    10. Adachi, Takanori & Ebina, Takeshi, 2014. "Double marginalization and cost pass-through: Weyl–Fabinger and Cowan meet Spengler and Bresnahan–Reiss," Economics Letters, Elsevier, vol. 122(2), pages 170-175.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sprinkle, Geoffrey B., 2003. "Perspectives on experimental research in managerial accounting," Accounting, Organizations and Society, Elsevier, vol. 28(2-3), pages 287-318.
    2. John Christensen, 2019. "Corporate choice and individual values: using accounting to align incentives," Business Research, Springer;German Academic Association for Business Research, vol. 12(1), pages 95-114, April.
    3. Eric John Slof, 1999. "Transfer prices and incentive contracts in vertically-integrated divisionalized companies," European Accounting Review, Taylor & Francis Journals, vol. 8(2), pages 265-286.
    4. Markus Arnold & Florian Elsinger & Frederick W. Rankin, 2021. "The Unintended Consequences of Headquarters’ Involvement in Decentralized Transfer Price Negotiations: Experimental Evidence," Management Science, INFORMS, vol. 67(12), pages 7912-7931, December.
    5. Xi Li & Krista J. Li & Yan Xiong, 2023. "Channel Coordination of Storable Goods," Marketing Science, INFORMS, vol. 42(3), pages 538-550, May.
    6. Brand, Björn & Grothe, Michael, 2013. "A note on ‘Corporate Social Responsibility and Marketing Channel Coordination’," Research in Economics, Elsevier, vol. 67(4), pages 324-327.
    7. Ciabuschi, Francesco & Dellestrand, Henrik & Kappen, Philip, 2012. "The good, the bad, and the ugly: Technology transfer competence, rent-seeking, and bargaining power," Journal of World Business, Elsevier, vol. 47(4), pages 664-674.
    8. Peter C. Dawson & Stephen M. Miller, 2009. "International Transfer Pricing for Goods and Intangible Asset Licenses in a Decentralized Multinational Corporation: Review and Extensions," Working Papers 0901, University of Nevada, Las Vegas , Department of Economics.
    9. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    10. Clemens Löffler & Thomas Pfeiffer & Ulf Schiller & Joachim Wagner, 2011. "Zentralisierung, Transferpreise und spezifische Investitionen: Ein selektiver Verfahrensvergleich," Schmalenbach Journal of Business Research, Springer, vol. 63(63), pages 1-33, January.
    11. Lau, Amy Hing Ling & Lau, Hon-Shiang & Wang, Jian-Cai, 2007. "Pricing and volume discounting for a dominant retailer with uncertain manufacturing cost information," European Journal of Operational Research, Elsevier, vol. 183(2), pages 848-870, December.
    12. Liu, Yan & Shi, Hongyan & Petruzzi, Nicholas C., 2018. "Optimal quality and quantity provisions for centralized vs. decentralized distribution: Market size uncertainty effects," European Journal of Operational Research, Elsevier, vol. 265(3), pages 1144-1158.
    13. Pennerstorfer, Dieter & Weiss, Christoph R., 2012. "On the Relative Disadvantage of Cooperatives: Vertical Product Differentiation in a Mixed Oligopoly," Journal of Rural Cooperation, Hebrew University, Center for Agricultural Economic Research, vol. 40(1), pages 1-32.
    14. Michael Olbrich & David J. Rapp & Florian Follert, 2022. "Eugen Schmalenbach, Austrian economics, and German business economics," Post-Print hal-02891111, HAL.
    15. Greg Shaffer & Florian Zettelmeyer, 2004. "Advertising in a Distribution Channel," Marketing Science, INFORMS, vol. 23(4), pages 619-628, November.
    16. Johannes Paha, 2017. "Wholesale Pricing with Incomplete Information about Private Label Products," MAGKS Papers on Economics 201736, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    17. Guttorm Schjelderup & Lars Sorgard, 1997. "Transfer Pricing as a Strategic Device for Decentralized Multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(3), pages 277-290, July.
    18. Salma Karray & Chirag Surti, 2016. "Channel coordination with quantity discounts and/or cooperative advertising," International Journal of Production Research, Taylor & Francis Journals, vol. 54(17), pages 5317-5335, September.
    19. Biswas, Indranil & Avittathur, Balram & Chatterjee, Ashis K, 2016. "Impact of structure, market share and information asymmetry on supply contracts for a single supplier multiple buyer network," European Journal of Operational Research, Elsevier, vol. 253(3), pages 593-601.
    20. Altug, Mehmet Sekip & van Ryzin, Garrett, 2013. "Product quality selection: Contractual agreements and supplier competition in an assemble-to-order environment," International Journal of Production Economics, Elsevier, vol. 141(2), pages 626-638.

    More about this item

    Keywords

    Pricing Transfer pricing Experiment;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:196:y:2009:i:2:p:434-439. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.