The evolution of market power and its relation with inflation in Türkiye

In this study, I analyzed the evolution of market power in Türkiye between the 2006-2021 period by estimating firm-level and aggregated markups with a data-set covering a vast majority of Turkish industries. I also examined if the inflation in Türkiye was related with the changes in market power. I show that, despite a general decrease in industry concentrations, market power, as measured by markups, in Türkiye has seen a rise since 2014. Weighted average markup for the Turkish economy has risen from 1.15 to 1.22 over the period analyzed. The evidence suggests that, the increase in market power for the Turkish economy has been primarily driven by the rise of markups of the large firms within the industries. The results of the empirical analysis employed on the potential impacts of markups, and thus market power, on inflation, however, do not provide a clear answer whether there is conclusive evidence on such a relationship in the Turkish economy. Nevertheless, the simultaneous surge of markups along with inflation in 2021 in Türkiye and some other economies, together with the findings of several studies in the literature, imply a vicious circle such that market power fuels inflation and increasing inflation strengthens firms' market power. Initially which triggers which remains uncertain and requires further study on this very subject.