Transfer pricing

I. Markets, Firms and Organisational structure

Markets and Firms

Economic activities occur within companies or across markets

Market provides a mechanism to transfer ownership of assets or product or service in exchange for
the price
Market gives signals to coordinate activities
 highest valued usage of resources
 price influence decisions on the market

Firms may offer lower costs of production in cases:

 Costs of acquiring knowledge and to enforce a contract

 Synergies of performing some activities together
 Lower transaction costs (cheaper to buy products within a firm, than to acquire the equivalents
from the market)
 The more specific an activity or the longer the term of a contract, the costlier ( затратнее) the
market mechanism

Organisational architecture
 Activities within the firm are not coordinated by market mechanism
 Need for an alternative mechanism to ensure
