Measuring market power through price-cost margins — A key metric in antitrust economics
A Lerner Index of 0.20 suggests meaningful market power. Firms can sustain prices above marginal cost. This could indicate product differentiation, barriers to entry, or oligopolistic coordination. Mergers here warrant careful competitive effects analysis.
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