Talk:Transfer pricing

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Quick note on the deletion of the PwC links. While I think it is useful to ensure that all of the Big 4 are represented in the external links, we need to make sure that any links provide the user with new information--the page linked was simply a listing of the transfer pricing-related services provided by PwC. jonny-mt 04:52, 14 May 2007 (UTC)

This page only discusses the the academic applications of transfer pricing. That's really only half the story (less than half the story really). Transfer Pricing among multi nationals is a huge issue, and I suspect that there are a number of people looking for information on that, only to find themselves facing supply and demand charts. Can a disccusion of actual transfer pricing occur here?

I agree with whomever made the point above. The relation of transfer pricing to business ethics is definitely the more important half of the issue. An economic description of transfer pricing should be in layman's terms, as it is not just economists who are interested in the issue. Article rewrite appropriate? Caravaca 18:42, 15 February 2006 (UTC)
I added some comments about transfer pricing in the context of International Tax (which is my day job). Gareth Green 22 September, 2006

go ahead Mion 00:53, 16 February 2006 (UTC)

Okay, I did. I added in a section on the practical application of transfer pricing including five major methods of calculating the arm's length price, the usage of APAs and MAPs, and so on. I included Gareth's comments as well, but I rewrote the introductory section and put all the economic talk and overly-large graphs into its own section. As an aside, I'm a TP analyst at one of the Big 4 in Tokyo, but the fact that I am fairly junior means that I can't guarantee that all of my facts or theory are right. Admittedly, I don't really have any reason to doubt them....--jonny-mt 05:15, 28 September 2006 (UTC)

I find your addition confusing:

Suppose there is a monopoly. The firm can choose a level of output, but should set the price accordingly, based on the demand curve.

I don't see how it applies to the article. Transfer pricing can be done by monopolists, ologopolists, pure competeitors, and monopolistic competitors. Likewise the MC=MR rule is also more-or-less universal (with some modifications). I think what you are saying is that a monopolist can either set a quantity and take the price dictated by the market, or set the price and take the quantity given by the market. They can set either price or quantity but not both. But more to the point, why is this included? If you think the concept of equating MC to MR is not clearly explained, then either put a link to the profit maximization article into the text, or add a short summary of the concept. Introducing the idea of monolpolies seems like a bit of a "red herring".- - user:mydogategodshat

The article is not very clear to me, but it seemed to me that it was concerned with determining a price by a company, so apparently it was not about perfect competition, and the simplest alternative of that is a monopoly. Maybe you should make clearer what market form you are talking about, which variables are given and which are varied, to find what kind of optimum. - Patrick 20:55 30 Jun 2003 (UTC)


Transfer pricing can be applied in any form of market, however, you are right that the diagrams would change slightly depending on whether its a monopoly, ologopoly, monopolistic competition, or pur competition. Primarily the slope of the demand and marginal revenue curves would change. But the profit maximizing procedures are still more-or-less the same. The main variant is in the extreme case of perfect competition where the demand curve is perfectly elastic at the market clearing price, and as a consequence MR=D=AR=P. The diagrams I constructed are somewhere in the middle of the market forms continuum. They most closely depict monopolistic competition. But I don't think we should get diverted into the difference between market forms in this article. It would surve little purpose to go into that here (plus I don't want to draw four sets of diagrams). There are other articles that go into the details of profit maximization under monopoly, pure competition, ologopoly, and monopolistic competition. -- user:mydogategodshat

Okay, I deleted the part about monopoly. For now, I do not understand enough of the article to decide where to start making edits. But I would expect remarks such as that it does not make any difference for the firm as a whole what the transfer price is, except perhaps for taxes, but that the law may require a realistic price. And that the transfer price could also be determined by pretending that parts of the firm are independent firms, therefore each maximize their own profit. - Patrick 22:20 30 Jun 2003 (UTC)
The relationship between transfer pricing and tax law is extremely complex. I would dread writing that article. user:mydogategodshat
I added a remark about taxes. - Patrick 07:31 1 Jul 2003 (UTC)

Contents

[edit] Transfer Pricing

The article is helful though I would prefer to see the associated math. To be realistic, the model needs to be evaluated in an oligopoly situation. Practically most of the companies that adhere to transfer pricing are mulitnational where there is a conflict of objective about maximising regional profits or overall company profits. Thus shifting profits becomes a primary driver, which can be realised more effeciently in an oligopoly. Regional differences also drive transfer pricing (eg monopoly in certain markets), which is why looking at the overall company as being a price taker is not realistic in multi economy frameworks. Nor is looking at overall monopolies helpful as price makers by defintion violate the arm's length principle. - anisc

Response:
1 - I could add the math, but someone would have to check it. My Lagrangian Calculus is a bit rusty.
2 - I don't know if it is true that all or even most multinationals are ologopolists. Many operate in monopolisticly competitive or monopolistic markets.
3 - I agree that various regional differences can be important, but how do you include specific complications like that into these simple models. These general models are designed to abstract from such specifics so as to make them simple enough to be understandable.
4 - In some markets a multinational will be forced to be a price taker, in others they will choose to be a price taker (ie, they will choose to set quantity), and in still others they will choose to be a price maker. We can not make the claim that they will be one or the other in all cases (or even in most cases).
5 - Monopolists are not necessarily price makers.
mydogategodshat 19:14, 13 Feb 2004 (UTC)

Those charts really mess up the formatting of the text, IMO... ugen64 03:44, Feb 25, 2004 (UTC)

How so? On my browser they don't interact with the text at all. mydogategodshat 05:10, 25 Feb 2004 (UTC)


im resitting a Masters exam on this in a few says.. ive looked at various international/global marketing books nobody can explain transfer pricing properly this article is useless

go here instead http://www.solbaram.org/articles/clm503.html for better info EdgeUHF@Hotmail.com

The link is a useful article in understanding the practical tax consequences of transfer pricing. The current Wiki article is more theoretical and analytical. Now that you've finished your exam, how about adding some of the tax information to this article? mydogategodshat 17:32, 31 July 2005 (UTC)


On behalf of those who found this article useful (likely the silent majority): Nice job. Thanks.

[edit] remake

Well, thats a complete remake of this article, dunno who made it, it needs a cleanup to follow wikistandards, maybe me , i think its worth it, later on. Mion 01:09, 12 April 2006 (UTC) It looks like work in progress.I'll wait a week Mion

[edit] merge old and new version

User talk:Mydogategodshat , made a request to merge the both versions. Mion 03:48, 12 April 2006 (UTC)

[edit] This is a copyed text

COMMUNITY ECONOMICS Multinational Operations

Transfer Pricing and Taxation by Manfred Davidmann

[edit] In layman's terms

Here's my explaination in layman's terms. Could be useful for someone rewriting the article.

Basically Tranfer Pricing is just a way to move your profits and it's commonly done to pay less tax. It's as simple as that! All you have to do is sell your goods at a higher price or lower price so that more profit is made in the country with the lowest tax. Simple. You just raise the price in the place with the higher tax. Jago25 98 17:32, 21 April 2006 (UTC)jago25_98

Please check out the new info to understand why that's not quite right. --jonny-mt 05:17, 28 September 2006 (UTC)