Difference between revisions of "Lerner index"
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(quantifying monopoly power) |
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The Lerner index is a formula to quantify a firm's monopoly power: | The Lerner index is a formula to quantify a firm's monopoly power: | ||
| − | : Lerner index = (P-MC)/P | + | :Lerner index = (P-MC)/P |
where P is the price and MC is the marginal cost. | where P is the price and MC is the marginal cost. | ||
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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. | 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]] | ||
Revision as of 18:01, August 1, 2007
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.