Glossary of competition terms

This Glossary was prepared by DG COMP and the OECD for non-competition specialists. Each term is enriched with references of national case laws from the e-Competitions Bulletin. (© European Union - © OECD)

Lerner Index

A measure proposed by economist A.P. Lerner to measure monopoly or market power. The Lerner Index (LI) is:

In perfect competition, LI is equal to zero. The index defines monopoly power in terms of the slope of the demand curve. In the case of a profit maximizing firm in equilibrium, marginal revenue equals marginal cost and the LI is equal to the inverse of the elasticity of demand.

The LI is a static measure and does not indicate whether the deviation between price and marginal cost is a worthwhile cost to pay for possible innovation or new plant construction, or whether the disparity between marginal cost and price may reflect superior efficiency rather than the ability of a firm to charge high prices.