ABSTRACT
Transfer pricing is a system in which a company's subunit sets the internal price (the transfer price) to provide its products or services to another subunit in the same company. This chapter explains some transfer prices and introduces the dual pricing in Mitsubishi Electric. Transfer prices are classified into three categories, basically depending on whether or not there is a market of transferred goods and services. They are as follows: market-based transfer prices; cost-based transfer prices; and other transfer prices. Market-based transfer prices are the most objective price if there are many buyers and sellers and they are price takers. By using dual pricing, a company can attain both objectives of performance measurement and goal congruence. However, the demerit of dual pricing may mislead divisions. The more important thing is that this transfer pricing problem often happens in the division system. That is, products are transferred between a manufacturing department and a sales department in one division.
