Who should bear the pain of price competition? A Kaleckian approach

Abstract

Ongoing globalization and the rise of neoliberalism have intensified price competition in domestic and international markets. If we consider a cost reduction owing to price competition, an important question arises: what is the most effective way of reducing costs to stimulate output and growth? By constructing a Kaleckian model with an intermediate goods sector and a final goods sector, we show that reducing the mark-up rate in the latter sector rather than the former promotes capacity utilization and capital accumulation. Moreover, we show that transferring the burden of the cost reduction onto workers in the intermediate goods sector decreases the demand and growth rate.