Pricing Internal Trade to Get a Leg Up on External Rivals

23 Pages Posted: 15 Aug 2008

See all articles by Anil Arya

Anil Arya

Ohio State University (OSU) - Fisher College of Business

Brian Mittendorf

Ohio State University (OSU) - Fisher College of Business

Abstract

The pricing of transfers from parent to subsidiary is an oft-explored issue. Linking the cost of internal transfers with external market prices is one common approach, typically justified when the market for the good is perfectly competitive. This paper shows that imperfect competition may also justify market-based transfer prices. Concern that transfer price will deviate from marginal cost and thereby distort subsidiary choices can lead a parent to undertake actions to influence the market price of the upstream good. Such efforts can provide a desirable strategic posture in the upstream market.

Suggested Citation

Arya, Anil and Mittendorf, Brian, Pricing Internal Trade to Get a Leg Up on External Rivals. Journal of Economics & Management Strategy, Vol. 17, Issue 3, pp. 709-731, Fall 2008. Available at SSRN: https://ssrn.com/abstract=1227207 or http://dx.doi.org/10.1111/j.1530-9134.2008.00192.x

Anil Arya

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Brian Mittendorf

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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