Negotiated transfer pricing, specific investment, and optimal capacity choice

verfasst von

Stefan Wielenberg

Abstract

This paper investigates investment decisions in a divisionalized firm, in which an upstream division supplies an intermediate product to a downstream division. The upstream division's investment includes two simultaneous decisions. First, the division determines its capacity level, and second, it invests in a firm specific production technology that lowers the marginal cost of production. Both the capacity and the specificity decision must be made before the actual demand for the intermediate product is observable. Since the terms of internal trade are negotiated between the divisions, the upstream division faces the well-known holdup problem and thus has incentives to underinvest. It turns out that a simple contract stipulating a minimum quantity and a transfer price for excessive quantities is sufficient to induce the efficient capacity and specificity decisions.

Externe Organisation(en)

Otto-von-Guericke-Universität Magdeburg

Typ

Artikel

Journal

Review of accounting studies

Band

5

Seiten

197-216

Anzahl der Seiten

20

ISSN

1380-6653

Publikationsdatum

09.2000

Publikationsstatus

Veröffentlicht

Peer-reviewed

Ja

ASJC Scopus Sachgebiete

Bilanzierung, Allgemeine Unternehmensführung und Buchhaltung

Elektronische Version(en)

https://doi.org/10.1023/A:1009604809480 (Zugang: Geschlossen)