📊 Lerner Index Calculator
Measure market power and pricing efficiency
Market price of the product
Marginal cost of production
How to Use This Calculator
Enter Price
Input the market price of the product or service you're analyzing.
Enter Marginal Cost
Input the marginal cost of producing one additional unit. This is the cost of producing one more unit.
Calculate
Click calculate to see the Lerner Index, which measures market power and pricing efficiency.
Review Results
Use the Lerner Index to assess market power, compare markets, and understand pricing efficiency. Lower index indicates more competitive markets.
Formula
Lerner Index:
Lerner Index = (Price - Marginal Cost) / Price
Range: 0 (perfect competition) to 1 (perfect monopoly)
Markup:
Markup = Price - Marginal Cost
Example 1: Competitive Market
Price: $100, Marginal Cost: $95
Lerner Index: ($100 - $95) / $100 = 0.05
✅ Low market power - competitive market
Example 2: Monopoly Market
Price: $100, Marginal Cost: $40
Lerner Index: ($100 - $40) / $100 = 0.60
⚠️ High market power - significant markup
About Lerner Index Calculator
The Lerner Index Calculator helps economists, analysts, and researchers measure market power by calculating the difference between price and marginal cost relative to price. This economic indicator ranges from 0 (perfect competition) to 1 (perfect monopoly), providing a standardized measure of pricing efficiency and market competitiveness. Higher Lerner Index values indicate greater market power and ability to set prices above marginal cost.
When to Use This Calculator
- Market Analysis: Measure market power and competitiveness in an industry
- Antitrust Analysis: Evaluate potential monopoly power for regulatory purposes
- Economic Research: Calculate Lerner Index for academic research and studies
- Competitive Assessment: Compare market power across different markets or firms
- Pricing Analysis: Understand pricing efficiency and markups
- Policy Evaluation: Assess the effectiveness of competition policies
Why Use Our Calculator?
- ✅ Quick Calculation: Instantly calculate Lerner Index from price and marginal cost
- ✅ Clear Interpretation: Automatically interprets index levels
- ✅ Additional Metrics: Shows markup and markup percentage
- ✅ Standard Formula: Uses the standard economic Lerner Index formula
- ✅ Free Tool: No cost for essential economic analysis
Common Applications
- Economic Research: Calculate market power for economic studies
- Regulatory Analysis: Assess market power for antitrust reviews
- Industry Analysis: Compare competitiveness across industries
- Academic Studies: Research market structure and pricing behavior
Tips for Best Results
- Accurate Marginal Cost: Use actual marginal cost, not average cost
- Market Price: Use actual market price, not list price (if different)
- Time Period: Use price and cost data from the same time period
- Compare Markets: Compare Lerner Index across similar markets or time periods
- Consider Context: Interpret results in context of industry structure and competition
Frequently Asked Questions
What does the Lerner Index measure?
The Lerner Index measures market power by showing how much a firm can mark up price above marginal cost. It ranges from 0 (perfect competition, price equals marginal cost) to 1 (perfect monopoly, infinite markup). Higher values indicate greater market power and less competitive markets.
What's the difference between marginal cost and average cost?
Marginal cost is the cost of producing one additional unit. Average cost is total cost divided by quantity. For Lerner Index, use marginal cost, not average cost. Marginal cost is the relevant cost for pricing decisions in economics.
What's a good Lerner Index?
Lower is better for competition. Lerner Index < 0.3 indicates competitive markets. 0.3-0.6 indicates moderate market power. > 0.6 indicates high market power (monopoly-like). Perfect competition has Lerner Index = 0, meaning firms can't set prices above marginal cost.
How is Lerner Index related to price elasticity?
Lerner Index = 1 / |Price Elasticity of Demand|. When demand is elastic (sensitive to price), Lerner Index is low. When demand is inelastic (insensitive to price), firms have more market power and higher Lerner Index. This relationship shows why monopolies have high Lerner Index.
Can Lerner Index be negative?
No, Lerner Index cannot be negative. If marginal cost exceeds price, the firm is losing money on each sale, which is not sustainable. The Lerner Index ranges from 0 to 1, where 0 means no markup (price = marginal cost) and 1 means infinite markup.
How do I use Lerner Index for antitrust analysis?
Regulators use Lerner Index to assess market power. High Lerner Index (above 0.6) may indicate monopoly power requiring investigation. Combined with market share and other factors, Lerner Index helps evaluate whether firms have sufficient market power to harm competition. It's one tool in comprehensive antitrust analysis.