Transfer prices force segments of a business to compete for the company's resources.

Question

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Transfer prices are prices that are set on transactions between two segments (or divisions) of the same company. These prices are used to allocate resources and costs between the segments. When transfer prices are in place, segments must compete for resources within the company, as they will have to pay a certain price for raw materials, labor or other inputs provided by other segments. This competition can sometimes lead to inefficiencies, as segments may be reluctant to share resources or knowledge that can benefit the company as a whole.

Transfer Prices Force Segments of a Business to Compete for the Company's