External and internal pricing in multidivisional firms


Reichelstein, Stefan ; Baldenius, Tim



URL: https://www.gsb.stanford.edu/faculty-research/work...
Document Type: Working paper
Year of publication: 2003
The title of a journal, publication series: Working papers
Volume: 1825
Place of publication: Stanford, CA
Publishing house: Stanford Graduate School of Business
Publication language: English
Institution: Business School > Stiftungsprofessur für ABWL (Reichelstein 2018-)
Subject: 330 Economics
Abstract: Multidivisional firms frequently rely on external market prices in order to value internal transactions across profit centers. This paper examines market-based transfer pricing when an upstream division has monopoly power in selling a proprietary component both to a downstream division within the same firm and to external customers. When internal transfers are valued at the prevailing market price, the resulting transactions are distorted by double marginalization. The imposition of intracompany discounts will always improve overall firm profits provided the supplying division is capacity constrained. Under certain conditions it is then possible to design discount rules so that the resulting prices and sales quantities are effcient from the corporate perspective. In contrast, the impact of intracompany discounts remains ambiguous when the capacity of the selling division is essentially unlimited. It is then generally impossible to achieve fully effcient outcomes by means of market-based transfer pricing unless the external market for the component is suffciently large relative to the internal market. Download

Dieser Datensatz wurde nicht während einer Tätigkeit an der Universität Mannheim veröffentlicht, dies ist eine Externe Publikation.




+ Citation Example and Export

Reichelstein, Stefan ; Baldenius, Tim (2003) External and internal pricing in multidivisional firms. Working papers Stanford, CA 1825 [Working paper]


+ Search Authors in

+ Page Views

Hits per month over past year

Detailed information



You have found an error? Please let us know about your desired correction here: E-Mail


Actions (login required)

Show item Show item