International Intra-Company Transfer Pricing

This paper presents the important issues of the multinational corporation's transfer pricing determination problem. It discusses the behavioral consequences of the setting of transfer prices by top management. It presents a model of transfer pricing that is developed further to include all of the issues that affect the total profits of the multinational corporation through transfer prices. The model is then expanded to include economic externalities and interdependencies such as nonlinear cost functions and functional relationships among demand, supply and transfer prices. An example is given and solved via geometric programming.