Post-keynesian pricing approach: An application on Turkish manufacturing industry

This thesis deals with pricing, which is one of the most important topics in economics and yet has not satisfactorily been explained by mainstream approaches. In the capitalist mode of production, everything that is produced for exchange has a price. Capitalists who produce by bringing labour and other inputs together have to make various strategic decisions in order to grow their firms, and maintain their market share or their life in the face of tough competition. Pricing is one of these decisions. In such an environment, it is unrealistic to assume that firms adjust their production quantities by taking given price determined by the market conditions. Post-Keynesian economics, which has a place outside mainstream economics, suggests that industrial prices are administratively determined by firms through economic relations of the real world. According to this simple and realistic view, firms apply a margin (mark-up) to various cost accounts. Factors affecting the mark-up rate are also important in terms of pricing. The most famous factor is the monopolistic power of the firm. It is suggested that monopoly power grants the firm an advantage in price-setting behavior. In addition, since industrial products are generally made up of products that are subject to foreign trade, it is thought that factors related to foreign trade also affect pricing behavior. In this study, the theoretical foundations of pricing behavior were examined from Post-Keynesian view and have been empirically tested for the period 2003-2015 in two-digit 22 sub-sectors of the Turkish manufacturing industry. The econometric findings support the Post-Keynesian cost-based pricing hypothesis. Mark-up rates are estimated to play the dominant role on industrial prices, together with non-wage costs. This relationship appears to be stronger in imperfect sectors than in competitive ones. However, the significant decrease in the coefficient of mark-up rate after the 2008 crisis indicates that the pre-crisis accumulation process for the manufacturing industry in general has slowed down and there has been an erosion in price-setting power. In contrast to the market discipline hypothesis, it is found that foreign trade liberalization has had a booster effect on sectoral prices. This situation can be interpreted as adapting the manufacturing industry capitalists to the increasing foreign trade liberalization by increasing prices. Keywords: Post-Keynesian economics, pricing, mark-up, manufacturing industry, panel data analysis.