Operations Research Letters
Transfer price; Cooperative game theory; The core; Shapley value
We consider the transfer pricing decision for a multidivisional firm with an upstream division and multiple downstream divisions. The downstream divisions can independently determine their retail prices, and decide on whether or not they will purchase from the upstream division at negotiated transfer prices. To allocate the firm-wide profit between upstream and downstream divisions, we construct a cooperative game, show the convexity of the game, and then compute the Shapley value-based transfer prices for the firm.
The first author (Mingming Leng) was supported by the National Natural Science Foundation of China under Grant No. 70901036.
Copyright © 2012 Elsevier B.V. All rights reserved. Access to external full text or publisher's version may require subscription.
Accepted Author Manuscript
Leng, M., & Parlar, M. (2012). Transfer pricing in a multidivisional firm: A cooperative game analysis. Operations Research Letters, 40(5), 364-369. doi: 10.1016/j.orl.2012.04.009