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Profit Margins and Cost Pass-Through in Türkiye

Author

Listed:
  • H. Burcu Gurcihan Yunculer
  • Cagri Sarikaya

Abstract

This paper investigates the link between profit margins and cost pass-through to producer prices for the manufacturing sector in Türkiye. Using sector-level panel data, we show that pass-through is lower in industries with higher profit margins in line with the theory that predicts that stronger competition leads to greater pass-through. The impact of cost shocks is found to be more muted for export-oriented industries. In contrast, it is stronger for industries with higher import intensity and foreign currency leverage. We also test the significance of market concentration measures in explaining cost pass-through as alternative indicators of market power. While the dispersion of profit rates is found to be an important source of the differentiation in cost pass-through across sectors, market concentration measures do not have significant impact.

Suggested Citation

  • H. Burcu Gurcihan Yunculer & Cagri Sarikaya, 2024. "Profit Margins and Cost Pass-Through in Türkiye," Working Papers 2404, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:2404
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/en/tcmb+en/main+menu/publications/research/working+paperss/2024/24-04
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    More about this item

    Keywords

    Producer prices; Cost pass-through; Profit margins; Market power; Market concentration;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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