Transfer Prices and the Excess Cost of Canadian Oil Imports: New Evidence on Bertrand versus Rugman

Abstract

This paper presents the first systematic empirical evidence on transfer pricing in multinational corporations. The authors examine the Canadian petroleum industry, which is dominated by foreign multinationals. The data cover the period 1974-84 and allow the authors to analyze the allegation of excess cost paid by Canadians for crude oil imports. They find little empirical evidence to support the view that during this period, FOB crude oil prices paid by Canadian affiliates of multinational corporations were higher than FOB third-party or arm's-length prices, once qualitative factors are taken into account. Indeed the opposite conclusion, that Canada has benefited from multinational oil companies' transfer-pricing practices, appears to prevail.