What does the Lerner Index tell me?
It indicates how much a firm can mark up prices above marginal cost. Higher values mean less competition and more pricing power.
Calculator
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Analysis
Interpretation of the current calculator output
Enter values to see detailed analysis and insights.
How to Use
Step-by-step instructions
- 1Enter the selling price of the product
- 2Enter the marginal cost to produce one additional unit
- 3Review the Lerner Index score (0 to 1)
- 4Assess the level of market power
Lerner Index Formula
Measures the degree of monopoly power. It ranges from 0 (perfect competition) to 1 (monopoly).
L = (P - MC) ÷ PVariables:
PPrice set by the firmMCMarginal Cost of productionExample
Tech Gadget
Inputs:
Price:$100
Marginal Cost:$60
Steps:
- 1.L = ($100 - $60) ÷ $100
- 2.L = $40 ÷ $100
- 3.L = 0.40
Result:
0.40 (Significant Market Power)
Frequently Asked Questions
What is the relationship with elasticity?
The Lerner Index is the inverse of the price elasticity of demand (L = 1/Ed). Higher elasticity means lower market power.
Is a high Lerner Index illegal?
No, but it may attract antitrust scrutiny if it suggests a monopoly abusing its power.