Abstract
A multinational firm sets the price that applies to intra-firm trade between the firm’s affiliates at a central level, but delegates decisions about national prices (or quantities) to national affiliates. When these affiliates encounter competition it is shown that delegation of authority and the nature of competition changes the role of the transfer price; it now becomes both a tax saving and a strategic device. Comparative static results develop transfer pricing policies for affiliates encountering Cournot as well as Bertrand competition.
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Schjelderup, G., Sorgard, L. Transfer Pricing as a Strategic Device for Decentralized Multinationals. International Tax and Public Finance 4, 277–290 (1997). https://doi.org/10.1023/A:1008612320614
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DOI: https://doi.org/10.1023/A:1008612320614