search query: @indexterm COST ALLOCATION / total: 143
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| Author: | Alles, M. Datar, S. |
| Title: | Strategic transfer pricing |
| Journal: | Management Science
1998 : APR, VOL. 44:4, p. 451-461 |
| Index terms: | TRANSFER PRICING COST ALLOCATION INCENTIVES MODELS COMPANIES |
| Language: | eng |
| Abstract: | Most research into cost systems has focused on their motivational implications. A different approach is presented by developing a model where two oligopolistic firms strategically select their cost-based transfer prices. Duopoly models frequently assume that firms game on their choice of prices. Product prices, however, are ultimately based on the firms' transfer prices that communicate manufacturing costs to marketing departments. It is for this reason that transfer prices will have a strategic component to them. Implications are derived for cost system choice and transfer pricing, including showing that firms may cross subsidize their products. That is a result consistent with the empirical evidence. |
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