Decentralized capacity management and internal pricing

  title={Decentralized capacity management and internal pricing},
  author={Sunil Dutta and Stefan Reichelstein},
  journal={Review of Accounting Studies},
This paper studies the acquisition and subsequent utilization of production capacity in a multidivisional firm. In a setting where an upstream division provides capacity services for itself and a downstream division, our analysis explores whether the divisions should be structured as investment or profit centers. The choice of responsibility centers is naturally linked to the internal pricing rules for capacity services. As a benchmark, we establish the efficiency of an arrangement in which the… CONTINUE READING

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