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Transfer Pricing in Multinational Firms with Vertical Differentiation

Taefi Aghdam, Niloofar | 2013

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 45502 (01)
  4. University: Sharif University of Technology
  5. Department: Industrial Engineering
  6. Advisor(s): Shavandi, Hasan
  7. Abstract:
  8. For Organizations that intend to do their various activities in the form of separate and independent units, precise information about the profits or losses of each unit is very important. One of the most important factors required to determine the profitability of units and their performances, is the price at which goods and services are exchanged amongst units. The value assigned to these transactions and events is called "transfer price". As these transfers occur within the organizations, and they heavily affect the performance evaluation of managers of different parts of the organization, their valuation must be performed with sufficient insight.
    This paper examines the impact of product quality on transfer pricing and demand. Our framework is based on the researches done by the Ferrelra and Thisse (1995) and Jen-Te Yao (2013), extending the Launhardt model. Moreover, this paper examines the impacts of the arm’s length principle on transfer pricing of two multinational enterprises. The results indicate that firms can increase their demand, and gain greater profit by increasing the quality of their products, and that the arm’s length principle plays a strategic role in controlling the prices, and in limiting price discrimination.
  9. Keywords:
  10. Transfer Pricing ; Multidivisional Firms ; Vertical Differentiation ; The Arm's Length Principal

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