IDEAS home Printed from https://ideas.repec.org/a/spr/reaccs/v4y1999i2d10.1023_a1009638001487.html
   My bibliography  Save this article

Negotiated versus Cost-Based Transfer Pricing

Author

Listed:
  • Tim Baldenius

    (Columbia University)

  • Stefan Reichelstein

    (University of California)

  • Savita A. Sahay

    (Baruch College, CUNY)

Abstract

This paper studies an incomplete contracting model to compare the effectiveness of alternative transfer pricing mechanisms. Transfer pricing serves the dual purpose of guiding intracompany transfers and providing incentives for upfront investments at the divisional level. When transfer prices are determined through negotiation, divisional managers will have insufficient investment incentives due to “hold-up” problems. While cost-based transfer pricing can avoid such “hold-ups”, it does suffer from distortions in intracompany transfers. Our analysis shows that negotiation frequently performs better than a cost-based pricing system, though we identify circumstances under which cost-based transfer pricing emerges as the superior alternative.

Suggested Citation

  • Tim Baldenius & Stefan Reichelstein & Savita A. Sahay, 1999. "Negotiated versus Cost-Based Transfer Pricing," Review of Accounting Studies, Springer, vol. 4(2), pages 67-91, June.
    • Handle: RePEc:spr:reaccs:v:4:y:1999:i:2:d:10.1023_a:1009638001487
    DOI: 10.1023/A:1009638001487
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1023/A:1009638001487
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1023/A:1009638001487?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    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:spr:reaccs:v:4:y:1999:i:2:d:10.1023_a:1009638001487. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.