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A Puzzling Story: The Cyclical Behavior of Price-cost Margins / Eine verwirrende Geschichte: Das zyklische Verhalten von Preis-Kosten-Margen

Author

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  • Wied-Nebbeling Susanne

    (Staatswissenschaftliches Seminar der Universität zu Köln, Albertus-Magnus-Platz, D-50923 Köln)

Abstract

Some recent empirical studies reveal countercyclical price-cost margins. From a microeconomic point of view this is not plausible because for the overwhelming number of industries, profits are highest in boom. As indicators of profitability price-cost margins should be procyclical. However, it will be shown that a margin relying on marginal cost can behave countercyclically or remains constant even with procyclical profits. A margin based on average cost is a better indicator of the development of profits. Therefore, empirical analysts should not regard different definitions of price-cost margins as equivalent.

Suggested Citation

  • Wied-Nebbeling Susanne, 1999. "A Puzzling Story: The Cyclical Behavior of Price-cost Margins / Eine verwirrende Geschichte: Das zyklische Verhalten von Preis-Kosten-Margen," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 218(1-2), pages 107-127, February.
    • Handle: RePEc:jns:jbstat:v:218:y:1999:i:1-2:p:107-127
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