The Arm's Length Principle and Tacit Collusion
AbstractThe arm's length principle states that the transfer price between two associated enterprises should be the price that would be paid for similar goods in similar circumstances by unrelated parties dealing at arm's length with each other. This paper examines the effect of the arm's length principle on dynamic competition in imperfectly competitive markets. It is shown that the arm's length principle renders tacit collusion more stable. This is true whether firms have exclusive dealings with unrelated parties or compete for the demand from unrelated parties.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 37295.
Date of creation: 23 Nov 2011
Date of revision: 12 Mar 2012
Transfer price; arm's length principle; tacit collusion; stability of collusion;
Other versions of this item:
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-21 (All new papers)
- NEP-BEC-2012-03-21 (Business Economics)
- NEP-COM-2012-03-21 (Industrial Competition)
- NEP-IND-2012-03-21 (Industrial Organization)
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