Strategic delegation in procurement

Alonso-Pauli, Eduard and Bru, Lluís (2018): Strategic delegation in procurement.

Abstract

In a firm organized into business units, we show when profitability increases if procurement is delegated to the division in charge of production. We highlight that our results are driven by the business unit having a different objective function than Headquarters. The profitability of procurement delegation is affected by the essentiality of production facilities to the activities of the firm, and by strategic distortions in both transfer and input prices. We also look at vertical separation of activities as an alternative to procurement delegation.

• Item Type: MPRA Paper
• Language: English
• Keywords: strategic delegation, transfer pricing, procurement
• Subjects: D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M11 - Production Management

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