Misappropriation, Transfer Pricing and Supply Chain Coordination
Date Issued
2004
Date
2004
Author(s)
Wang, Hsiao-Wen
DOI
en-US
Abstract
Misappropriation, Transfer Pricing and Supply Chain Coordination
Opportunism on the part of the subcontractor in a contractor-subcontractor relationship is the focus of research in this dissertation. In the first part of the dissertation, chapter 3, we extend Baiman and Rajan (2002b) with an incorporation of contractors’ internal production option and study how contractors’ make/buy decisions are affected by subcontractors’ superior production efficiency and misappropriation. We show that there exist two thresholds in the contractor’s innovation disclosure strategy when incorporating an internal production capability for the contractor. This generalizes the result of Baiman and Rajan (2002b). Specifically, the contractor will organize an efficient coordinated supply chain only when innovations fall between the two thresholds. Our results explain why firms strategically outsource low-end products and produce high-end products themselves in practice. We also explore the implications for contractor-subcontractor relationships when alternative manufacturing sources are introduced into the supply chain. In addition, we incorporate the legal environment and examine the impact of subcontractors’ opportunism on contractors’ make/buy decision in that context. The results are as follows. Our baseline case shows that in the absence of misappropriation, both the contracting parties and society can benefit from organizing a coordinated supply chain and employing an outsourcing strategy. In addition, it is a more efficient way to adopt the production pattern of vertical disintegration for supply chains. Second, the contractor’s choice of relationships and each party’s investment decisions are socially suboptimal when the possibility of misappropriation exists. Third, our results explain the role of information sharing in improving the performance of the supply chain. We show that stricter legislation to protect the contractor’s innovations will increase social welfare. Finally, we show that introducing a capability to produce in-house increases the incentive for the contractor to invest more in R&D activities.
In the second part of the dissertation, we extend the scenario of chapter 3 and consider the subcontractor as a decentralized firm. We propose an asymmetric model to study the role of transfer pricing schemes in coordinated supply chain. We use the model to examine the impact of various transfer pricing schemes on supply chain efficiency. Specifically, we conduct a performance comparison between the variable-cost transfer pricing scheme and the full-cost transfer pricing scheme. The results of chapter 4 indicate that there exist information distortions, inefficient trades and holdup problems in the supply chain when incentive problems exist among the contracting parties. Second, we suggest that in addition to the misappropriation, the subcontractor’s accounting system and accounting choices will affect the contractor’s sourcing decisions, and in turn, influence the supply chain performance. Third, we find that the variable-cost transfer pricing scheme performs better in achieving the supply chain coordination.
Generally speaking, the key message delivered in this dissertation is that contractors will take some crucial factors into account in deciding their own make/buy and sourcing decisions. Such relevant factors include the relative production efficiency of contracting parties, the underlying value of innovation, the possibility of subcontractors’ misappropriation, and subcontractors’ accounting choices.
Subjects
供應鏈合作
垂直分工
Nash談判解
盜用
轉撥計價
Supply chain coordination
Nash bargaining solution
Transfer pricing
Misappropriation
Information sharing
Vertical disintegration
Type
other
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