Impact of formalization of the economy on the pricing power of firms

Abstract

Pricing power of the firms depends on a lot of parameters like industry competitiveness, the purchasing power of consumers, the target market segment, etc. Similarly, the extent of formalization of the economy is also suspected to affect the pricing power of firms. In this study, we measure and estimate the impact of formalization on the pricing power of firms. We have developed a regression model to determine the same by using the data for top 50 firms listed on the BSE stock exchange. The analysis has been done by taking PBITDA% (of the industry) as a proxy for pricing power; and Direct Tax to GDP ratio for formalization. Our hypothesis is that the pricing power of firms increases with the increase in formalization.