Study On Transfer Pricing Strategies For Firms

With increasing economic integration, Enterprise Group plays a more and more important role on the economic stage, not only as Producer, but also as Organizer. Meanwhile, as a result of China's accession to WTO, more and more enterprises are targeting Chinese domestic markets, which bring challenges as well as opportunities. In response to the situation, many Chinese enterprises are seeking to enlarge their scales to establish Enterprise Groups. However, during these processes, there are lots of non-economic factors and non-market behaviors involved in; there are even some enlargement and structure reform which are undertaken only for the sake of scale. Hence, a lot of problems are looming large in the management of enterprises. Among all the problems, the most significant one is the excessive use or misuse of transfer pricing, which can cause serious effects. Externally, the excessive use or misuse of transfer pricing may pass false signals to shareholders, creditors and the public, therefore misleading their decisions on resources distribution; while internally, it can give rise to a series of problems in management, such as unjust evaluation of working performances and inefficiency of the stimulation system. Thus, a proper and effective transfer pricing system is one of the important concerns in the establishment and development of Enterprise Group.A lot of research on transfer pricing system has been carrying out on both theoretical and practical level worldwide, and a few important theories and solutions have been put up. As a result of quantitative studies, some useful methods have been developed in transfer pricing. However, since these methods are developed under strict assumptions as 'no intermediate products' or 'on perfect competitive market', they can only apply to certain enterprises within certain market structures. This thesis, which was based on the previous research results, madesome improvements to the existing methods, and also proposed some new methods in transfer pricing system under more general assumptions.Studies and investigations are made in this thesis from the following aspects:1. Analysis on transfer-pricing strategy under the condition that intermediate products exist on the external market. In order to make general the assumption that intermediate products don't exist on external market or exist on a perfect competitive market, this thesis puts forward the discriminating transfer pricing strategy based on third-degree price discrimination theory. Some discussion is made on discriminating transfer pricing strategy under the cases of symmetric information and asymmetric information respectively. By comparing discriminating transfer pricing with the uniform transfer pricing and marginal cost transfer pricing, the thesis points out that discriminating transfer pricing strategy is superior to other pricing strategies, and can improve the total profit of enterprise.2. Analysis on transfer-pricing strategy in duopolistic market. The thesis makes some investigation into decision-making system of enterprise transfer pricing under duopolistic market. In its analysis, the thesis takes into consideration the effect of external environment to pricing-decision as a crucial factor by studying the competition form of final product market. E.g. price competition, quantity competition and asymmetric competition3. Analysis on transfer-pricing strategy for two products divisional enterprises. The thesis points out that optimal transfer pricing strategy may change with the variety of the final products. When final products are complementary to one and another, transfer price should be less than marginal cost of intermediate goods. If final products are independent, transfer price should be equal to marginal cost of intermediate goods; when final products are substitutable, transfer price should be higher than marginal cost of intermediate goods, andthe transfer price may incr...