This prediction is consistent with some of the field study evidence on market-based transfer
pricing. For example, Eccles [1985, p. 199] quotes a manager of a downstream division within
a chemical company who complains that the upstream division “was not soliciting additional
external business, which would lower the external market price and thereby lower the transfer
price.” Similarly, in the case study by Bastian and Reichelstein [2004] management of the
buying division expresses concern that the external market price set by the selling division for
particular types of specialty steel is partly driven by the firm’s market-based transfer pricing
system.