• ◦ The two major providers of private alarm systems in Norway engaged in a simple collusive market-sharing agreement made possible by a feature of this market. Market sharing pertained to door sales, which is a key marketing channel. Companies Sector and Verisure agreed to abstain from door sales to private homes marked with the rival company’s sign indicating it was providing home security services. A deviation from the agreement was detected by monitoring customer churn across the private alarm companies. There is no evidence the two companies coordinated on prices; they simply agreed not to poach each other’s customers using the door sales channel and thereby softened price competition.

• ◦ Deviations from the collusive outcome arose from two different sources. One source was attributable to sales personnel who were not privy to the collusive arrangement. While high-level executives agreed not to poach customers and instructed sales personnel not to approach the homes served by a rival company, those sales agents periodically did not comply, presumably so as to meet their sales targets. The other source of deviation was attributable to the colluding executives. After the acquisition of a small rival company, there was a misunderstanding as to whether those new customers for the acquiring firm were part of the no-poaching agreement. While these deviations did lead to some retaliatory aggressiveness, the CEOs eventually resolved the matter and returned to their market-sharing arrangement.

• ◦ All collusion is, in effect, semi-collusion as coordinating on some dimensions intensifies competition on uncoordinated dimensions, of which some are always remaining, and that reduces the profitability of collusion. In this case of the Swedish market for gasoline and diesel, collusion occurred on pump prices which intensified competition on rebates and consequently induced firms to also collude on rebates.

• ◦ There are two crucial features of this market relevant to the cartel episode, First, while many consumers pay the pump price, large corporate customers, such as transport and taxi companies, received a negotiated rebate on the pump price. Second, at the time of the particular incident being examined, the normal mode of market conduct was for firms to collude on pump prices. The resulting supracompetitive price-cost margin on pump prices caused firms to compete aggressively for larger consumers through rebates.

• ◦ The cartel episode of interest pertained to firms coordinating to remove these rebates. In the legal case, the firms claimed the coordinated removal of rebates was exactly offset by a reduction in pump prices, so there was no net effect on their corporate customers’ prices and those customers who paid pump prices were better off.

• ◦ The case study’s analysis does not support this claim for there is found to be a return of the pump price margin to its initial level. Large customers who lost their rebates were worse off, while small customers experienced only a brief period of lower pump prices, before prices returned to their initial higher level.

Introduction

In the literature on multinational enterprises (MNEs) it has been recognized that an MNE encountering differing tax and tariff schedules can shift profits to low-tax countries by altering transfer prices (Copithorne, 1971; Horst, 1971). There are two crucial assumptions in the literature on transfer pricing: First, the MNE's price or quantity decisions are made at a central level; second, the MNE exercises monopoly power in national markets. Many MNEs, however, delegate decision-making, such as output price decisions, to national affiliates. This is common in the automobile industry, where the parent company, which is the producer, determines the export price (transfer price) to importing foreign affiliates, but leaves the responsibility of deciding on the final price to consumers to the importing affiliate. Moreover, in most industries, including the automobile and oil industries, MNEs interact with other firms. Hence the monopoly-power assumption in the conventional literature is often violated. The purpose of this study is to analyze whether or not an MNE's transfer-pricing policy, which is decided upon at a central level, changes if the foregoing two assumptions are relaxed.

It is well known in the industrial-organization literature that a principal can gain extra benefit by hiring an agent and giving that agent an incentive to maximize something other than the welfare of the principal. Thus, if an MNE's affiliates face oligopolistic competition, it may be beneficial to the MNE to direct the incentives away from maximizing the MNE's global profits; provided that the MNE's competitors in the national markets react favorably.