In line with the aims of the Foundations and Trends® in Accounting series, the monograph of Narayanan and Smith (hereafter, N&S) provides a comprehensive analysis of the strategic roles of transfer prices and product costing practices in a duopolistic product market setting. The study contributes to a vast body of literature that has analyzed the cost and benefits of various commitment devices to alter firms' pricing and quantity choices in oligopoly markets.1
The basic idea of influencing the equilibrium of non-cooperative games by a commitment to a particular strategy can already be found in Thomas Schelling's seminal monograph The Strategy of Conflict, where he writes: “The essence of these tactics is some voluntary but irreversible sacrifice of freedom of choice. They rest on the paradox that the power to constrain an adversary may depend on the power to bind oneself” (Schelling 1960, 22). However, Schelling did...
