Measuring market power through price-cost margins — A key metric in antitrust economics
With a Lerner Index near zero, this market exhibits strong competition. Price is close to marginal cost, indicating minimal market power. Mergers in such markets may not raise antitrust concerns unless they dramatically increase concentration.
L = 1 / |ε|
For a profit-maximizing firm, the Lerner Index equals the inverse of the absolute value of demand elasticity. This means firms with more inelastic demand can charge higher markups—a key insight for market definition.
Implied Elasticity: |ε| = 5.00