Tuesday, August 30, 2011
Posted by D. Daniel Sokol
Kenneth G. Elzinga, University of Virginia - Department of Economics and David E. Mills, University of Virginia - Department of Economics have an interesting article on The Lerner Index of Monopoly Power: Origins and Uses.
ABSTRACT: Abba Lerner’s paper in the Review of Economic Studies (1934) is the source of what is now referred to as the Lerner Index of monopoly power. The Lerner Index has become the standard measure of monopoly power and one of the most widely cited indexes in the discipline of economics. This paper traces the origins of the index, sets out its strengths and weaknesses, and examines its role in antitrust enforcement. The Index is a better indicator of a firm’s price-setting discretion than its ability to sustain monopoly prices.