ABSTRACT
In the paper, we introduce price game models to study product transfer pricing in a supply chain consisting of two competing upstream producers and a downstream distributor. Three pricing mechanisms derived from market power are considered: both producers and the distributor have no determination rights of transfer pricing, both producers have determination rights of transfer pricing or the distributor has determination rights of transfer pricing. Comparisons of profits are made among the three pricing mechanisms. It concludes that the producer whose cost is lower between two producers will gain more profit and points out that production cost reduction by keeping technological level ahead and optimizing management process is the precondition of gaining more profit for both upstream producers under different competitive environment. And it also draws a conclusion that both upstream producers or the downstream distributor, whoever can decide transfer price will make more profit.
