Negotiating transfer pricing using the Nash bargaining solution
This paper analyzes and proposes a solution to the transfer pricing problem from the point of view of the Nash bargaining game theory approach. We consider a firm consisting of several divisions with sequential transfers, in which central management provides a transfer price decision that enables ma...
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Online Access: | https://doi.org/10.1515/amcs-2017-0060 |
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doaj-33b30892e93f4181b5ff023295134cef2021-09-06T19:39:50ZengSciendoInternational Journal of Applied Mathematics and Computer Science2083-84922017-12-0127485386410.1515/amcs-2017-0060amcs-2017-0060Negotiating transfer pricing using the Nash bargaining solutionClempner Julio B.0Poznyak Alexander S.1School of Physics and Mathematics, National Polytechnic Institute Luis Enrique Erro S/N, San Pedro Zacatenco, Del. Gustavo A. Madero, 07738 Mexico City, MexicoDepartment of Control Automatics, Center for Research and Advanced Studies Av. IPN 2508, Col. San Pedro Zacatenco, 07360 Mexico City, MexicoThis paper analyzes and proposes a solution to the transfer pricing problem from the point of view of the Nash bargaining game theory approach. We consider a firm consisting of several divisions with sequential transfers, in which central management provides a transfer price decision that enables maximization of operating profits. Price transferring between divisions is negotiable throughout the bargaining approach. Initially, we consider a disagreement point (status quo) between the divisions of the firm, which plays the role of a deterrent. We propose a framework and a method based on the Nash equilibrium approach for computing the disagreement point. Then, we introduce a bargaining solution, which is a single-valued function that selects an outcome from the feasible pay-offs for each bargaining problem that is a result of cooperation of the divisions of the firm involved in the transfer pricing problem. The agreement reached by the divisions in the game is the most preferred alternative within the set of feasible outcomes, which produces a profit-maximizing allocation of the transfer price between divisions. For computing the bargaining solution, we propose an optimization method. An example illustrating the usefulness of the method is presented.https://doi.org/10.1515/amcs-2017-0060negotiated transfer pricingnash bargainingtax avoidancecorporate taxation |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Clempner Julio B. Poznyak Alexander S. |
spellingShingle |
Clempner Julio B. Poznyak Alexander S. Negotiating transfer pricing using the Nash bargaining solution International Journal of Applied Mathematics and Computer Science negotiated transfer pricing nash bargaining tax avoidance corporate taxation |
author_facet |
Clempner Julio B. Poznyak Alexander S. |
author_sort |
Clempner Julio B. |
title |
Negotiating transfer pricing using the Nash bargaining solution |
title_short |
Negotiating transfer pricing using the Nash bargaining solution |
title_full |
Negotiating transfer pricing using the Nash bargaining solution |
title_fullStr |
Negotiating transfer pricing using the Nash bargaining solution |
title_full_unstemmed |
Negotiating transfer pricing using the Nash bargaining solution |
title_sort |
negotiating transfer pricing using the nash bargaining solution |
publisher |
Sciendo |
series |
International Journal of Applied Mathematics and Computer Science |
issn |
2083-8492 |
publishDate |
2017-12-01 |
description |
This paper analyzes and proposes a solution to the transfer pricing problem from the point of view of the Nash bargaining game theory approach. We consider a firm consisting of several divisions with sequential transfers, in which central management provides a transfer price decision that enables maximization of operating profits. Price transferring between divisions is negotiable throughout the bargaining approach. Initially, we consider a disagreement point (status quo) between the divisions of the firm, which plays the role of a deterrent. We propose a framework and a method based on the Nash equilibrium approach for computing the disagreement point. Then, we introduce a bargaining solution, which is a single-valued function that selects an outcome from the feasible pay-offs for each bargaining problem that is a result of cooperation of the divisions of the firm involved in the transfer pricing problem. The agreement reached by the divisions in the game is the most preferred alternative within the set of feasible outcomes, which produces a profit-maximizing allocation of the transfer price between divisions. For computing the bargaining solution, we propose an optimization method. An example illustrating the usefulness of the method is presented. |
topic |
negotiated transfer pricing nash bargaining tax avoidance corporate taxation |
url |
https://doi.org/10.1515/amcs-2017-0060 |
work_keys_str_mv |
AT clempnerjuliob negotiatingtransferpricingusingthenashbargainingsolution AT poznyakalexanders negotiatingtransferpricingusingthenashbargainingsolution |
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1717769881700532224 |