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Internal Pricing Tim Baldenius

Internal Pricing

Tim Baldenius

Published October 6th 2009
ISBN : 9781601982704
104 pages
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 About the Book 

Internal Pricing surveys of the transfer pricing literature with a focus on commonly-used pricing schemes using incomplete contracting models. Chapter 2 develops the basic symmetric information model to compare the performance of cost-based and negotiated pricing in the absence of external input markets. Chapter 3 considers market-based pricing and the role of internal price adjustments- it ignores investments and focuses solely on trading incentives. Chapter 4 adds investments to the model of Chapter 3 and shows that investment opportunities further strengthen the case for internal adjustments. Chapter 5 reconsiders the initial analysis of Chapter 2 for the case of asymmetrically informed divisional managers. The book ends with the authors conclusions and an appendix including the mathematical proofs. A key theme running through Internal Pricing is that the firms central office (i.e headquarters) plays a rather limited role in mediating individual transactions. This captures the stylized empirical fact that in most firms, headquarters designs the broad rules of the game by choosing a pricing mechanism and compensation contracts, but usually does not get involved in pricing on a product-by-product basis.