Organizational Factor Complementarity and Outcomes of Negotiated Transfer Price
Posted: 1 Jul 1998
Date Written: Undated
This study examines how complementarity of two key organizational factors -- sourcing and compensation structure -- affect negotiated transfer prices. The two between-subjects variables were manipulated as follows: (1) internal versus external sourcing; and (2) compensation based on division or firm profit. The outcomes examined are firm profit, conflict between trading divisions and the perceived fairness of the transfer pricing policy. The results indicate that organizational arrangements that take advantage of complementarity among organizational factors reduced conflict and enhanced perceived fairness of the pricing policy. However, the results on firm profit suggest that benefits from complementarity may not be ubiquitous across organizational arrangements, a problem also noted by Milgrom and Roberts (1995).
JEL Classification: C78, C91, L29
Suggested Citation: Suggested Citation