Question

Explain the purpose of using metric such as the lerner index in imperfect markets. do you think that this is measure is a very powerful metric of the degree of market power

Answer 1

purpose of using lerner index -

1 to know the degree of monopoly a firm exhibits in the power as monopoly power indicates degree of control a producer wield over price and output of product

2 elasticity of demand

3 high degree like to 1 tells the perfect monopoly

Low degree to 0 tells the perfect competition

So by knowing monopoly power , classification of markets can be known and accordingly govt can impose policies to increase growth and development

Yes lerner's index is very powerful measure of monopoly power still it has some criticism

Like it doesn't measures non price competition , no idication of potential substitutes when new firms enter only one aspect of monopoly etc