Cooperative Transfer Price Negotiations under Incomplete Information
AbstractIn this paper, we analyze a model in which two divisions negotiate over an intrafirm transfer price for an intermediate product. Formally, we consider bargaining problems under incomplete information, since the upstream division’s (seller's) costs and downstream division's (buyer's) revenues are supposed to be private information. Assuming two possible types for buyer and seller each, we first establish that the bargaining problem is regular, regardless whether incentive and/or efficiency constraints are imposed. This allows us to apply the generalized Nash bargaining solution to determine transfer payments and transfer probabilities. Furthermore, we derive general properties of this solution for the transfer pricing problem and compare the model developed here with the existing literature for negotiated transfer pricing under incomplete information. In particular, we focus on the models presented in Wagenhofer (1994).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Paderborn, CIE Center for International Economics in its series Working Papers with number 64.
Date of creation: Jul 2013
Date of revision:
Contact details of provider:
Postal: Warburger Str. 100, 33098 Paderborn
Web page: http://www.uni-paderborn.de/fakultaeten/wiwi/department4/cie/
More information through EDIRC
Transfer Pricing; Negotiation; Generalized Nash Bargaining Solution; Incomplete Information;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-20 (All new papers)
- NEP-COM-2013-07-20 (Industrial Competition)
- NEP-CTA-2013-07-20 (Contract Theory & Applications)
- NEP-GTH-2013-07-20 (Game Theory)
- NEP-MIC-2013-07-20 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
- John C. Harsanyi, 1968. "Games with Incomplete Information Played by "Bayesian" Players Part II. Bayesian Equilibrium Points," Management Science, INFORMS, vol. 14(5), pages 320-334, January.
- Alfred Wagenhofer, 1994. "Transfer pricing under asymmetric information," European Accounting Review, Taylor & Francis Journals, vol. 3(1), pages 71-103.
- Vaysman, Igor, 1998. "A model of negotiated transfer pricing," Journal of Accounting and Economics, Elsevier, vol. 25(3), pages 349-384, June.
- John C. Harsanyi, 1967. "Games with Incomplete Information Played by "Bayesian" Players, I-III Part I. The Basic Model," Management Science, INFORMS, vol. 14(3), pages 159-182, November.
- Myerson, Roger B, 1979.
"Incentive Compatibility and the Bargaining Problem,"
Econometric Society, vol. 47(1), pages 61-73, January.
- Roger B. Myerson, 1977. "Incentive Compatability and the Bargaining Problem," Discussion Papers 284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- John C. Harsanyi, 1968. "Games with Incomplete Information Played by `Bayesian' Players, Part III. The Basic Probability Distribution of the Game," Management Science, INFORMS, vol. 14(7), pages 486-502, March.
- Weidner, Frank, 1992. "The Generalized Nash Bargaining Solution and Incentive Compatible Mechanisms," International Journal of Game Theory, Springer, vol. 21(2), pages 109-29.
- John C. Harsanyi & Reinhard Selten, 1972. "A Generalized Nash Solution for Two-Person Bargaining Games with Incomplete Information," Management Science, INFORMS, vol. 18(5-Part-2), pages 80-106, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (FB5-Info).
If references are entirely missing, you can add them using this form.