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Decentralization and Transfer Pricing Under Oligopoly

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  • Laixun Zhao

Abstract

This paper presents a simple model of a partially decentralized multinational firm (MNF) in competition with a rival firm. It is shown that transfer pricing can be used as a rent‐shifting device by the MNF to compete with the rival. This arises because the MNF headquarters uses the transfer price to manage different subsidiaries. The specific value of the transfer price chosen by the MNF depends on whether the rival firm produces the intermediate good, the final good, or both and whether the rival is integrated or not. In particular, both decentralization and competition with a fully integrated rival result in lower transfer prices.

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  • Laixun Zhao, 2000. "Decentralization and Transfer Pricing Under Oligopoly," Southern Economic Journal, John Wiley & Sons, vol. 67(2), pages 414-426, October.
    • Handle: RePEc:wly:soecon:v:67:y:2000:i:2:p:414-426
    DOI: 10.1002/j.2325-8012.2000.tb00344.x
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    References listed on IDEAS

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    Cited by:

    1. Hayato Kato & Hirofumi Okoshi, 2022. "Economic Integration And Agglomeration Of Multinational Production With Transfer Pricing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1325-1355, August.

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