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The Determinants of the Price-Cost Margins of the Manufacturing Firms in Turkey

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2005-12
Çulha, Ali
Yalçın, Cihan
This study examines the determinants of the price-cost margins in the Turkish manufacturing industry spanning from 1995 to 2003. The literature on this subject points to the importance of market structure, business cycles and input costs. Utilizing panel data econometric techniques on a large number of manufacturing firms by conditioning on their size, age, ownership and export orientation, the study finds that there exists a marked difference among the firms’ pricing behaviors according to their market share. Import penetration seems to be ineffective to reduce the price-cost margins of large, high market share and foreign partner firms, while exporting activity was observed to act as a factor to enhance competition. The analysis also suggests that price-cost margins behave pro-cyclically in general and an appreciation of the domestic currency reduces price-cost margins by way of lowering input costs.