Customer-friendly sales division, transfer pricing, and the direct channel in the divisionalized firm

Jumpei Hamamura (), Momoe Hayashi () and Koki Wada ()
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Jumpei Hamamura: Kwansei Gakuin University
Momoe Hayashi: Momoyama Gakuin Unversity
Koki Wada: Momoyama Gakuin University

Economics Bulletin, 2024, vol. 44, issue 3, 932 - 939

Abstract: In this note, we assess the usefulness of transfer pricing in the divisionalized firm, which is composed of the headquarters and customer-friendly sales division. In particular, based on recent management practice, we assume the existence of a direct channel to provide the products to the consumer. From our analysis, we find that while the divisionalized firm always opens a direct channel to reach the consumer, the customer-friendly sales division does not improve the profit without the transfer pricing. In particular, we obtain that the manipulation of transfer price yields that the total profit does not depend on the level of emphasis of the customer by the sales division. In other words, the headquarters coordinates the supplied quantity using the transfer pricing under the direct channel. This result indicates the importance of internal transfer pricing to manage the divisionalized firm in a recent situation.

Keywords: transfer pricing; divisionalized firm; customer-friendly sales division; dual-channel (search for similar items in EconPapers)
JEL-codes: L1 M4 (search for similar items in EconPapers)
Date: 2024-09-30
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