Limitations of Market Transfer pricing

Limitations of Market Transfer pricing

In market transfer pricing, the market price is used for internal transfers. The main advantage of using this method is fair price method. This method can only be used, when an external market exists. There are some limitations of market transfer pricing, which have been explained below

1.    Market Price Changes

First important limitation of market transfer pricing is its continuous fluctuation.Market price continuously changes over the period of time and therefore cannot be used as standard for transfer pricing.

2.    Market Price Non Availability

Second limitation of market transfer price is non availability of market price.Market price may not be available for many products (specially for technical Goods). Therefore market pricing cannot be widely used by the organization.

3.    More than One Market Price

There may be more than one market price for a product i.e. retail price, or wholesale price. It is difficult to establish that what market price is to be used as market price.