Transfer Pricing and Interdivisional Conflict

by David Lambert



A principal source of hostility is the tendency of divisional units to emphasize their parochial interests, which other divisions tend to perceive as contrary to their interests. Nowhere in the firm is such a divergence of interests more apparent, or more conflict producing, than in the areas of transfer pricing. A transfer price is the charge attached to goods and services sold by one unit of a company to another unit of the same company. Most of the published research in transfer pricing concerns itself with the examination of relevant theoretical positions, which purport to define optimal approaches to setting transfer prices. Occasionally one sees descriptive research dealing with current industry practice. Conflict is sometimes mentioned in literature as logically proceeding from transfer pricing, enhanced or diminished by the use of one system versus another. Despite the wide usage of transfer pricing, there is a serious lack of inquiry into the possible impact on firm and personnel, of interdivisional conflict.

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