 Transfer pricing in a dynamic marketing-operations interfaceGary M. Erickson European Journal of Operational Research, 2012, vol. 216, issue 2, 326-333 Abstract: A transfer price mechanism is proposed to coordinate the strategies of the marketing and operations functional areas operating in a dynamic interface environment in a decentralized firm. Marketing and operations are strategic decision-makers in a differential game, in which marketing has price and advertising and operations has production as control variables, and advertising goodwill and production backlog are state variables. A constant transfer price is entered into the objective functionals for marketing and operations, and subgame perfect feedback strategies are derived for price, advertising, and production as functions of the state variables. The feedback strategies allow a solution for the dynamic system involving goodwill and backlog, and the total payoff to the firm, the sum of the payoffs to marketing and operations, is determined as a function of the transfer price. Finally, for certain parameter conditions an interior maximum of the payoff function is achieved, and the optimal transfer price is identified. Keywords: Transfer price; Marketing-operations interface; Differential game (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:216:y:2012:i:2:p:326-333 DOI: 10.1016/j.ejor.2011.07.042 Access Statistics for this article European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati More articles in European Journal of Operational Research from Elsevier |
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