The arm's length principle and tacit collusion

Chongwoo Choe and Noriaki Matsushima

International Journal of Industrial Organization, 2013, vol. 31, issue 1, 119-130

Abstract: The arm's length principle states that the transfer price between two associated enterprises should be the price that would be paid for similar goods in similar circumstances by unrelated parties dealing at arm's length with each other. This paper examines the effect of the arm's length principle on dynamic competition in two alternative models of vertical market structure. It is shown that the arm's length principle renders tacit collusion more stable and can reduce welfare when collusion targets the maximum collusive profit achievable in each environment.

Keywords: Transfer price; Arm's length principle; Tacit collusion; Stability of collusion (search for similar items in EconPapers)
JEL-codes: D43 L13 L41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Working Paper: The Arm's Length Principle and Tacit Collusion (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:31:y:2013:i:1:p:119-130

DOI: 10.1016/j.ijindorg.2012.12.001

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