Impact of transfer pricing methods for tax purposes on supply chain performance under demand uncertainty

Cited 23 time in webofscience Cited 0 time in scopus
  • Hit : 698
  • Download : 8
Transfer pricing refers to the pricing of an intermediate product or service within a firm. This product or service is transferred between two divisions of the firm. Thus, transfer pricing is closely related to the allocation of profits in a supply chain. Motivated by the significant impact of transfer pricing methods for tax purposes on operational decisions and the corresponding profits of a supply chain, in this article, we study a decentralized supply chain of a multinational firm consisting of two divisions: a manufacturing division and a retail division. These two divisions are located in different countries under demand uncertainty. The retail division orders an intermediate product from the upstream manufacturing division and sets the retail price under random customer demand. The manufacturing division accepts or rejects the retail division's order. We specifically consider two commonly used transfer pricing methods for tax purposes: the cost-plus method and the resale-price method. We compare the supply chain profits under these two methods. Based on the newsvendor framework, our analysis shows that the cost-plus method tends to allocate a higher percentage of profit to the retail division, whereas the resale-price method tends to achieve a higher firm-wide profit. However, as the variability of demand increases, our numerical study suggests that the firm-wide and divisional profits tend to be higher under the cost-plus method than they are under the resale-price method.
Publisher
WILEY-BLACKWELL
Issue Date
2013-06
Language
English
Article Type
Article
Keywords

MULTINATIONAL-FIRM; RETURNS POLICIES; TRANSFER PRICES; CONTRACTS; COORDINATION; ALLOCATION; EFFICIENCY; RETAILERS; DECISIONS; DISCOUNTS

Citation

NAVAL RESEARCH LOGISTICS, v.60, no.4, pp.269 - 293

ISSN
0894-069X
DOI
10.1002/nav.21533
URI
http://hdl.handle.net/10203/174722
Appears in Collection
MT-Journal Papers(저널논문)
Files in This Item
This item is cited by other documents in WoS
⊙ Detail Information in WoSⓡ Click to see webofscience_button
⊙ Cited 23 items in WoS Click to see citing articles in records_button

qr_code

  • mendeley

    citeulike


rss_1.0 rss_2.0 atom_1.0