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Strategic delegation in procurement

Eduard Alonso-Pauli () and Lluis Bru

MPRA Paper from University Library of Munich, Germany

Abstract: In a firm organized into business units, we show when profitability increases if procurement is delegated to the division in charge of production. We highlight that our results are driven by the business unit having a different objective function than Headquarters. The profitability of procurement delegation is affected by the essentiality of production facilities to the activities of the firm, and by strategic distortions in both transfer and input prices. We also look at vertical separation of activities as an alternative to procurement delegation.

Keywords: strategic delegation; transfer pricing; procurement (search for similar items in EconPapers)
JEL-codes: D24 D43 M11 (search for similar items in EconPapers)
Date: 2018-01-30
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