Why don't upper-level managers simply dictate transfer prices to divisional managers, and thereby avoid all the hassles and expense of the negotiations between them (divisional managers)?
Once upper-level managers impose their wills on lower-level managers, the autonomy of the lower-level managers is reduced. This situation is significant because managers should only be evaluated on the controllable aspects of operations. If upper management sets transfer prices, various divisional income measures (ROI, RI, etc.) are no longer fair bases on which to evaluate lower-level managers. Thus, intervention reduces both the authority to act and the subsequent responsibility of lower managers.
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