Profit Margins and Cost Pass-Through in Türkiye

24/04

March 2024

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.