Maxi Calculator

Lerner Index Calculator

Calculate the entered price-cost margin

Lerner Index Calculator

Educational scope: price must be greater than zero and at least marginal cost, which must be non-negative. Price-below-cost cases are excluded by this calculator’s scope; the ratio alone does not establish market power or legal status.

Enter the market price of the product

Enter the marginal cost of producing one additional unit

Educational scope: positive price, non-negative marginal cost, and price at least marginal cost (P ≥ MC). Below-cost pricing is outside this calculator’s accepted domain, rather than a mathematical impossibility. The output is an entered price-cost margin, without a universal market-power grade.

Table of Contents

What is the Lerner Index?

The Lerner Index expresses the entered price-minus-marginal-cost gap as a share of price. It is discussed as a market-power indicator, but this calculator does not establish a relevant market or a legal conclusion.

This calculation can help you:

  • Describe the entered price relative to marginal cost
  • Compare the same product across periods using the same cost definition
  • Document assumptions for further economic analysis

How to Calculate

The Lerner Index is calculated using the formula:

L = (P - MC) / P

Where:

  • L = Lerner Index
  • P = Price
  • MC = Marginal Cost

For the calculator's accepted inputs (price ≥ marginal cost):

  • 0 means the entered price equals marginal cost.
  • A higher value means a larger entered price-cost margin.

The calculator excludes price-below-cost cases and does not assess market definition, demand, or legal compliance.

Interpreting Results

Interpret the result only as the entered price-cost margin:

  • For example, 0.20 means the entered marginal cost is 20% below the entered price.

Business Applications

The Lerner Index is valuable for:

  • Developing pricing strategies
  • Assessing competitive position
  • Making market entry decisions
  • Evaluating industry attractiveness
  • Comparing the same product and cost definition over time

Frequently Asked Questions

Why is the Lerner Index important?

The index summarizes an entered price-cost margin. Broader competition or legal questions require evidence about the market, demand, and cost measurement that this calculator does not collect.

What are the limitations of the Lerner Index?

The index assumes perfect information about costs and prices, which may not always be available. It also doesn't account for dynamic market factors or non-price competition.

How often should I calculate the Lerner Index?

It's recommended to calculate the index regularly, especially when market conditions change, new competitors enter, or when adjusting pricing strategies.