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A game-theoretic approach to transfer pricing in a vertically integrated supply chain

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  • Rosenthal, Edward C.

Abstract

We study the problem of setting transfer prices in a vertically integrated supply chain, in which the divisions share technology and transactions costs. We develop a cooperative game that provides transfer prices for the intermediate products in the supply chain. This model is applied both when the market prices for these products are known and also when their valuations differ. We provide a solution that is fair and acceptable to all divisions. In the perfect information case, the Shapley value generates the transfer prices, while in the asymmetric case we obtain transfer prices from the solution to a linear program.

Suggested Citation

  • Rosenthal, Edward C., 2008. "A game-theoretic approach to transfer pricing in a vertically integrated supply chain," International Journal of Production Economics, Elsevier, vol. 115(2), pages 542-552, October.
  • Handle: RePEc:eee:proeco:v:115:y:2008:i:2:p:542-552
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Erickson, Gary M., 2012. "Transfer pricing in a dynamic marketing-operations interface," European Journal of Operational Research, Elsevier, vol. 216(2), pages 326-333.
    2. Chou, Yon-Chun & Huang, Hsing-Yi & Jahn, John & Kuo, Chien-Hung, 2010. "A framework of economic analysis for tapered technology-manufacturing alliances," International Journal of Production Economics, Elsevier, vol. 127(2), pages 249-261, October.
    3. Wu, Qiong & Ren, Hongbo & Gao, Weijun & Ren, Jianxing, 2017. "Benefit allocation for distributed energy network participants applying game theory based solutions," Energy, Elsevier, vol. 119(C), pages 384-391.
    4. 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.
    5. Kristianto, Yohanes & Gunasekaran, Angappa & Helo, Petri, 2017. "Building the “Triple R” in global manufacturing," International Journal of Production Economics, Elsevier, vol. 183(PC), pages 607-619.
    6. Anca D. Cristea & Daniel X. Nguyen, 2016. "Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 170-202, August.
    7. Feess, Eberhard & Thun, Jörn-Henrik, 2014. "Surplus division and investment incentives in supply chains: A biform-game analysis," European Journal of Operational Research, Elsevier, vol. 234(3), pages 763-773.
    8. Wu, Qiong & Ren, Hongbo & Gao, Weijun & Ren, Jianxing & Lao, Changshi, 2017. "Profit allocation analysis among the distributed energy network participants based on Game-theory," Energy, Elsevier, vol. 118(C), pages 783-794.
    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.

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