Final answer:
When Cadillac buys headlights from Delco, it involves a type of pricing called inter-divisional pricing. This is a pricing strategy used by companies that have multiple divisions or subsidiaries.
Step-by-step explanation:
When Cadillac buys headlights from Delco, it involves a type of pricing called inter-divisional pricing. This is a pricing strategy used by companies that have multiple divisions or subsidiaries. In this case, Cadillac and Delco are divisions of General Motors (GM), and when Cadillac purchases headlights from Delco, they are engaging in inter-divisional pricing.
Inter-divisional pricing is used to transfer goods or services between divisions within the same company. The pricing is usually determined based on the cost of production plus a reasonable profit margin. It allows the company to have more control over the supply chain and ensure that the divisions receive the necessary components or services.
By buying headlights from Delco, Cadillac is able to maintain quality control over the headlights used in their vehicles and ensure that they meet their standards. It also allows for greater coordination and efficiency within the company, as they are able to manage the production and distribution of the headlights internally.