The Lerner index runs from 0 (perfect competition, price equals marginal cost) towards 1 (strong monopoly power). It is used by economists and competition authorities to gauge how much pricing power a firm has.
How to use the Lerner Index Calculator
- Price
- Marginal cost
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the price and the marginal cost.
Tips
- Use figures for the same period (a month, a quarter or a year) for every input so ratios compare like with like.
- Track the metric over time – the trend usually tells you more than a single value.
- Compare your result with industry benchmarks, which vary a lot between sectors.
- Treat the result as a starting point for a decision, then check the assumptions behind each input.
Common mistakes to avoid
- Mixing monthly and yearly numbers in the same calculation.
- Using revenue where the formula needs profit (or the other way round).
- Forgetting hidden costs such as taxes, fees, overheads or your own time.
Inputs explained
| Field | What to enter |
|---|---|
| Price | Amount in your currency |
| Marginal cost | Amount in your currency |
What each result means
- Lerner index = ([Price] – [Marginal cost])÷[Price]
- Markup over marginal cost = ([Price]÷[Marginal cost] – 1)×100
- Implied price elasticity of demand = -1÷[Lerner index]
Example values
How the main result changes when Price changes and everything else stays at the example values above:
| Price | Lerner index |
|---|---|
| 60 | -0.333 |
| 90 | 0.111 |
| 120 | 0.333 |
| 150 | 0.467 |
| 180 | 0.556 |
| 240 | 0.667 |
Formula
Lerner index L = (P − MC) ÷ PFor a profit maximiser: L = −1 ÷ elasticity of demandWorked example
Inputs — Price: $120; Marginal cost: $80.
Results — Lerner index = 0.333; Markup over marginal cost = 50 %; Implied price elasticity of demand = -3; Market power = Significant market power.
Frequently asked questions
What does a Lerner index of 0 mean?
Price equals marginal cost – no market power.
Can the Lerner index be negative?
Only if a firm prices below marginal cost, which is not sustainable.
How is it related to elasticity?
For a profit-maximising firm, L = 1 ÷ |elasticity|.
What formula does the Lerner Index Calculator use?
Lerner index L = (P − MC) ÷ P.