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Customer-friendly sales division, transfer pricing, and the direct channel in the divisionalized firm

Author

Listed:
  • Jumpei Hamamura

    (Kwansei Gakuin University)

  • Momoe Hayashi

    (Momoyama Gakuin Unversity)

  • Koki Wada

    (Momoyama Gakuin University)

Abstract

In this note, we assess the usefulness of transfer pricing in the divisionalized firm, which is composed of the headquarters and customer-friendly sales division. In particular, based on recent management practice, we assume the existence of a direct channel to provide the products to the consumer. From our analysis, we find that while the divisionalized firm always opens a direct channel to reach the consumer, the customer-friendly sales division does not improve the profit without the transfer pricing. In particular, we obtain that the manipulation of transfer price yields that the total profit does not depend on the level of emphasis of the customer by the sales division. In other words, the headquarters coordinates the supplied quantity using the transfer pricing under the direct channel. This result indicates the importance of internal transfer pricing to manage the divisionalized firm in a recent situation.

Suggested Citation

  • Jumpei Hamamura & Momoe Hayashi & Koki Wada, 2024. "Customer-friendly sales division, transfer pricing, and the direct channel in the divisionalized firm," Economics Bulletin, AccessEcon, vol. 44(3), pages 932-939.
    • Handle: RePEc:ebl:ecbull:eb-23-00560
    as

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    References listed on IDEAS

    as
    1. Wei-yu Kevin Chiang & Dilip Chhajed & James D. Hess, 2003. "Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply-Chain Design," Management Science, INFORMS, vol. 49(1), pages 1-20, January.
    2. Matsui, Kenji, 2017. "When should a manufacturer set its direct price and wholesale price in dual-channel supply chains?," European Journal of Operational Research, Elsevier, vol. 258(2), pages 501-511.
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    More about this item

    Keywords

    transfer pricing; divisionalized firm; customer-friendly sales division; dual-channel;
    All these keywords.

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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