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Market Power and the Lerner Index: A Classroom Experiment


  • Rojas Christian

    (University of Massachusetts - Amherst)


We describe a classroom experiment that illustrates the concepts of market power and the Lerner Index. Students are organized in groups, each making a decision for a monopolist. Monopolists face different (unknown) demand curves, each with a different (constant) elasticity. Through repetition, students discover the profit maximizing solution and find that different monopolies have different mark-ups. The experimenter then reveals the unknown demand curves and illustrates how different elasticities are graphically and numerically connected to mark-ups and the Lerner index. The experiment can be used in a wide variety of courses including principles of economics, intermediate microeconomics, industrial organization, international trade, managerial economics and MBA classes. The experimental design is flexible: it can accommodate different class sizes (ranging from 10 to 100+ students) as well as different demand parameterizations. Finally, to reinforce the economic concept of profit maximization (MR=MC) in this setting, we also suggest and describe the implementation of an exercise based on the experimental design.

Suggested Citation

  • Rojas Christian, 2011. "Market Power and the Lerner Index: A Classroom Experiment," Journal of Industrial Organization Education, De Gruyter, vol. 5(1), pages 1-19, March.
  • Handle: RePEc:bpj:jioedu:v:5:y:2011:i:1:n:2

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    References listed on IDEAS

    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    2. Greg Delemeester & Jurgen Brauer, 2000. "Games Economists Play: Noncomputerized Classroom Games," The Journal of Economic Education, Taylor & Francis Journals, vol. 31(4), pages 406-406, December.
    3. Atin Basuchoudhary & Christopher Metcalf & Kai Pommerenke & David Reiley & Christian Rojas & Marzena Rostek & James Stodder, 2008. "Price Discrimination and Resale: A Classroom Experiment," The Journal of Economic Education, Taylor & Francis Journals, vol. 39(3), pages 229-244, July.
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    Cited by:

    1. Gerald Eisenkopf & Pascal Sulser, 2013. "A Randomized Controlled Trial of Teaching Methods: Do Classroom Experiments Improve Economic Education in High Schools?," Working Paper Series of the Department of Economics, University of Konstanz 2013-17, Department of Economics, University of Konstanz.

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