Lerner and Loewe

The Lerner and Loewe concept, or the Lerner Index, measures a firm's market power—its ability to set prices above costs. It is calculated as the difference between a firm's price and its marginal cost, divided by the price. A higher index indicates greater market power and less competitive pressure, meaning the firm can charge more than the minimum cost to produce. Conversely, an index near zero suggests a highly competitive market where prices closely match costs. This helps assess how much a firm can influence prices in its industry and the level of competition present.