This article from Tax Planning International Transfer Pricing is the third in a series of NERA 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.

In their third article, the authors use a case study to illustrate how game theory concepts can be applied to specify an arm’s length remuneration for group companies’ contributions to the value elements in the banking industry. The authors apply the Shapley Value method to a case in which a combined profit in the asset management business of banks derives from the contributions of different group companies to three value elements: labor, capital, and intellectual property.