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.
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