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quantifying monopoly power

The Lerner index is a formula to quantify a firm's monopoly power:

: Lerner index = (P-MC)/P

where P is the price and MC is the marginal cost.

The index ranges from 0 (no monopoly power) to 1 (complete monopoly power when MC=0).

This index has been criticized for relying on MC, which is not usually known, and for being static rather than dynamic.

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Lerner index (view source)

Revision as of 02:13, May 6, 2007