Profit Margins and Cost Pass-Through in Türkiye

H. Burcu Gurcihan Yunculer and Cagri Sarikaya

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

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.

Keywords: Producer prices; Cost pass-through; Profit margins; Market power; Market concentration (search for similar items in EconPapers)
JEL-codes: C23 D40 E31 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ara, nep-com and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:2404

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