Difference between revisions of "Lerner index"
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| − | + | The '''Lerner index''' is a formula to quantify a firm's [[monopoly]] power: | |
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| + | :Lerner index = (P-MC)/P | ||
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| + | where P is the price and MC is the marginal cost. | ||
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| + | The index ranges from 0 (no monopoly power) to 1 (complete monopoly power when MC=0). | ||
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| + | 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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| + | [[Category:Economics]] | ||
Latest revision as of 14:35, June 22, 2010
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.