Thought Experiment Transfer Pricing Alternatives: Supporting John M. Clark’s Workable Competition Pricing

 The object of this study is to analyze numerical results for a thought experiment comparing transfer pricing alternatives of a hypothetical corporation having a manufacturing division making a single product and a marketing division that sells that product. Each division seeks to maximize its own profits. The marketing division faces hypothetical fluctuating demand fluctuations, prosperity versus depression, for a final product that is semi-perishable costly to store such as cement. The manufacturing division has two alternate technologies, high fixed cost versus low fixed costs. The transfer pricing alternatives: A) short-run marginal cost pricing high price volatility over the business cycle versus B) John M. Clark’s workable competition pricing low price volatility over the business cycle. The manufacturing division plants have linear total cost functions with absolute capacity limits. In opposition to perfect competition theory, this study argues in support of John M. Clark (1884-1963) workable competition theory. The thought experiment shows a gain in consumer surplus and to corporate profits over the cycle with transfer pricing John M. Clark’s workable competition theory. This article offers reasons for this gain. This thought experiment should inspire other researchers to do similar hypothetical thought experi-ments.

Author(s) Details:

Gerald Aranoff,
Ariel University, Ariel 40700, Israel.

Please see the link here: https://stm.bookpi.org/CABEF-V9/article/view/9295

A Numerical Example Illustrating Globalization: Focus should be on Supply for the Peaks | Chapter 1 | Insights into Economics and Management Vol. 1

 

We are talking about globalisation and the recent manufacturing and construction slowdown. We present a novel globalisation model consisting of two countries, X and Y, each with domestic and foreign open-market systems. In each nation, we compare two pricing policies: short-run marginal cost, SRMC, versus fixed prices, P, over the business cycle. We are presenting a proposition and proof. With graphs for each country, we give a detailed numerical example. The key consequence is that P increases the volatility of Q demand over the cycle during the business cycle and increases market surplus in both countries under certain conditions. The numerical example shows a drawback of SRMC pricing under demand fluctuations—that the required price in high-demand times to balance accounts becomes extremely high. Consumers are better off with P , paying a small increase over SRMC in the off-peak, 6/7th of the time, to avoid the extremely large required price of SRMC in the peak times, because it’s only 1/7 of the time. The surprising point is that though peak times are infrequent, the prices and quantities at peak times, determine which pricing arrangement is better for consumers. The significance of my mathematical proof is to urge social focus on increasing and prolonging cyclical peaks.

Author(s) Details

Gerald Aranoff
Professor of Accounting, Ariel University, Ariel 40700 Israel.

View Book :- https://bp.bookpi.org/index.php/bpi/catalog/book/276