The Arm’s Length Principle, Transfer Pricing and Foreclosure under Imperfect Competition

Abstract: This paper studies a multinational firm’s transfer price decisions in imperfectly competitive market settings. It investigates whether the firm’s optimal transfer price coincides with the arm’s length price and examines how the firm might respond if it is compelled to follow the arm’s length principle. The main findings are: (1) in the absence of tax transfer incentives, the firm’s optimal transfer price does not coincide with the arm’s length price. If the firm is compelled to follow the arm’s length principle, it has an incentive to circumvent the arm’s length principle by keeping two sets of books, one for internal management, and another for tax reporting purposes; (2) the arm’s length principle can affect the MNF’s decision on whether or not to foreclose its competitor. Absent profit shifting incentives, the firm will foreclose its downstream competitor. Imposing the arm’s length principle induces the firm to supply its competitor, but the firm can revert to its foreclosure decision by keeping two sets of books. If the firm’s upstream and downstream divisions face different tax rates, the firm’s foreclosure decision will be reversed if the arm’s length principle is enforced.Crime Victimisation, Institutions, Happiness, Ordered Probit, Rule of Law.

The Value of a Reputation System

This paper explores the trade-off between the short-term benefits of false quality advertisements against the longer term costs of reputation damage. A directed search model is constructed in which submarkets are created by the advertisements and reputations of sellers. A reputation system links misleading advertisements in the present period to a lower reputation in the next period. We show that a reputation system always increases the prices of high quality products and directs search more accurately towards the sellers with such products. We also show that buyers are hurt by a reputation system if the market is thin -- has few sellers -- because the equilibrium increase in prices is greater than the equilibrium increase in the quality of trade. Finally, we show that a reputation system which screens for honesty increases social welfare by making sellers more truthful. However, we also show that a reputation for honesty is not always highly valued and that an alternative reputation system which screens for type can be more effective.reputation systems, directed search

The impact of labels on the competitiveness of the European food label supply chain

The report studies the impact of private labels on the competitiveness of the European food processing industry and investigates whether a system of producer indication may improve the functioning of the food supply chain. The impact is studied using economic theory and empirical and legal analysis. The study is completed with an impact assessment

Legal structure and management of terminals: Focus on commercial issues and privatization

Most ports globally remain under public control, yet globalization and international logistic chains exercise pressure towards the dilution of the public control. This text presents briefly the institutional framework of ports and focuses on the operational and financial triggers to dilute public control. Then the key issues related to the market and the society are analyzed. This chapter concludes with a section on the bid process and the primal points discussed, negotiated and agreed in a concession procedure. --Port Management,Terminal Management,Privatization

The Issue of Globalization-An Overview

[From Summary] In the 1990s, globalization gained widespread usage as a term with many interpretations. Globalism is employed in this report to describe networks of interdependence functioning at multi-continental distances. Globalization is an increase in globalism and de-globalization a reduction. In providing an introductory view of these networks, with an emphasis on contemporary economic factors, a goal of this report is to illustrate how policy consequences, sometimes unintended, may be dispersed via globalized networks. As networks expand and become more intricate there is an opportunity for feedback along previously non-existent linkages

Payment intermediation and the origins of banking

The medieval banks of continental Europe facilitated trade by serving as payment intermediaries. Depositors commonly would pay one another by transferring bank balances with the aid of overdraft credit. We model this process in an environment of intermediate good exchange with incomplete contract enforcement. Our model suggests that the early banks were capable of accessing the "netting credit" that exists by virtue of there being a high proportion of offsetting transactions in an economy. Individual traders are unable to net their individual positions because of difficulty in enforcing contracts for future performance with the other traders. Banks, by standing between buyer and seller on a centralized basis, can internalize the offsetting nature of the whole set of trades. This original role of banks is still a vital one.