The Generalized Nash Bargaining Solution for Transfer Price Negotiations under Incomplete Information
Haake, Claus-Jochen
Recker, Sonja
ddc:040
In our model two divisions negotiate over type-dependent contracts to
determine an intrafirm transfer price for an intermediate product. Since the
upstream division's (seller's) costs and downstream division's (buyer's)
revenues are supposed to be private information, we formally consider
cooperative bargaining problems under incomplete information. This means
that the two divisions consider allocations of expected utility generated by
mechanisms that satisfy (interim) individual rationality, incentive
compatibility and/or ex post efficiency. Assuming two possible types for
buyer and seller each, we first establish that the bargaining problem is
regular, regardless whether or not incentive and/or efficiency constraints
are imposed. This allows us to apply the generalized Nash bargaining
solution to determine fair transfer payments and transfer
quantities. In particular, the generalized Nash bargaining solution tries to
balance divisional profits, while incentive constraints are still in
place. In that sense a fair profit division is generated. Furthermore, by
means of illustrative examples we derive general properties of this solution
for the transfer pricing problem and compare the model developed here with
the models existing in the literature. We demonstrate that there is a
tradeoff between ex post efficiency and fairness.
Springer
2018
info:eu-repo/semantics/article
doc-type:article
text
http://purl.org/coar/resource_type/c_6501
https://ris.uni-paderborn.de/record/4564
Haake C-J, Recker S. The Generalized Nash Bargaining Solution for Transfer Price Negotiations under Incomplete Information. <i>Group Decision and Negotiation</i>. 2018;27(6):905-932. doi:<a href="https://doi.org/10.1007/s10726-018-9592-8">10.1007/s10726-018-9592-8</a>
eng
info:eu-repo/semantics/altIdentifier/doi/10.1007/s10726-018-9592-8
info:eu-repo/semantics/closedAccess