Transfer Prices Determined by Game Theory: Application to IP
1 November 2008
By Dr. Alexander Voegele, Sébastien Gonnet, and Bastian Gottschling
This article from Tax Planning International Transfer Pricing -- by NERA Special Consultant Dr. Alexander Voegele and Senior Consultants Sébastien Gonnet and Bastian Gottschling -- is the second in a series of three articles on the role that game theory can play in transfer pricing. In the first article, the authors discussed key game theory concepts such as the "Core" and "Shapley Value," which are powerful tools to set arm's length transfer prices, particularly in cases where the group's activities are integrated and unique and valuable intangibles are jointly developed. The second article illustrates the applicability of these game theory concepts to the transfer pricing of intellectual property by considering a case in which a combined profit derives from the contributions of multiple factors of IP.
