Transfer pricing and channel structure of a multinational firm under overseas retail disruption risk

Baozhuang Niu, Yaoqi Liu, Feng Liu, Carman K.M. Lee

Research output: Journal article publicationJournal articleAcademic researchpeer-review

8 Citations (Scopus)

Abstract

Considering a chain-to-chain competition model, we formulate a new multinational firm's (MNF's) trade-off between global tax-planning gains (via transfer pricing) and channel decentralisation loss. In the presence of an established MNF's competition, it is optional for the new MNF to operate two divisions (one for domestic manufacturing and one for overseas retailing) or one integrated division selling products to an independent overseas retailer at a wholesale price. For the former, we characterise the new MNF's transfer pricing strategies and find that interestingly, MNFs might both keep profits in high-tax region due to the tense competition in the retailing stage. For the latter, we find that the new MNF's channel decentralisation via wholesaling can be a win–win situation for the established MNF and itself, when the new MNF's overseas retail cost is in a moderate range. We further examine the new MNF's overseas retail disruption risk and find that, this risk drives the new MNF to lower the transfer price sharply and intensifies the retail competition. We use contraction mapping argument to show the uniqueness of the system equilibrium.

Original languageEnglish
Pages (from-to)2901-2925
Number of pages25
JournalInternational Journal of Production Research
Volume57
Issue number9
DOIs
Publication statusPublished - 3 May 2019

Keywords

  • channel competition
  • global retailing
  • retail disruption risk
  • transfer pricing

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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