Luiz Fernando Cerqueira, Ph.D.1, Carmem A. Feijó, Ph.D.1, and José C. Miranda, Ph.D.2. (1) Economics, Federal Fluminense University at Niterói, Rua Barata Ribeiro, # 803, app. 103 - Copacabana, Rio de Janeiro, 22051-000, Brazil, (2) Economics, Federal University at Rio de Janeiro, Rua Barata Ribeiro, # 803, app. 103 - Copacabana, Rio de Janeiro, 22051-000, Brazil
The aim of this paper is to investigate the determinants of mark up in the Brazilian industrial firms in the 1990s, a period of low growth and significant changes in the macroeconomic scenario. Based on the post Keynesian price theory, we assume that changes in prices depend on decisions about the mark up. In this sense, it is important for policy makers to understand the determinants of the mark up to evaluate the impact of economic policy on private decisions of the firms. At the beginning of the nineties Brazilian economy was facing a persistent high inflation process. Several economic plans aiming at controlling inflation since mid eighties had not been well succeeded. Besides the persistent inflationary environment, economic liberalization measures – commercial and financial - were undertaken, exposing the economy to a greater competitive pressure. In 1994, inflation was finally defeated by the Real Plan, and a new macroeconomic scenario for the decision making process emerged. A semi-fixed exchange rate regime was the key variable to the success of the anti-inflationary plan. As several external crises followed after 1994, the degree of economic uncertainty was kept high during the decade. As a result, after the Real Plan, the economy showed a stop and go pattern of growth. During the semi-fixed exchange rate regime, real domestic interest rates were kept in a high level, inhibiting investment plans in fixed capital. Industrial firms showed a defensive behavior in relation to pricing decisions. The econometric exercise developed in this paper showed that micro and macroeconomic variables are relevant to explain the determination of the mark up. Our results showed that the decrease in the real exchange rate and the increase in the degree of openness of the economy contributed to the decrease in the mark up. We also observed an inverse relation between the variation in aggregate demand – as expressed by the increase in the real interest rate and decrease in the sectorial value added – and the variation in the mark up. This finding suggests that mark up had an anti-cyclical behavior during the nineties. To sum up, the main contribution of this paper is to present solid evidence about the validity of the post Keynesian assumptions and to shed some light to the understanding of the behavior of industrial firms concerning pricing decisions under price stability.
Key words: pricing decisions, mark up determination, internal accumulation of funds, model with panel data.
JEL: C33, E31, E32, E39.