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Who Invented the Lerner Index? Luigi Amoroso, the Dominant Firm Model, and the Measurement of Market Power

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  • Nicola Giocoli

Abstract

The invention of the price/cost margin (P-MC)/P as an index of market power is usually credited to Lerner (Rev Econ Stud 1(3):157–175, 1934 ). Landes and Posner (Harv Law Rev 94(5):937–996, 1981 ) is similarly often considered the main reference for the generalized version of the index in the case of a dominant firm that shares the market with price-taking rivals. From the viewpoint of the history of industrial economics both claims are incorrect. It was not Lerner who invented the price/cost margin index and the generalized version was fully derived before WWII. In both cases, priority should be given to Luigi Amoroso, the leading Italian mathematical economist in the interwar decades. In the latter case the names of Heinrich von Stackelberg and George Stigler also deserve credit. Copyright Springer Science+Business Media, LLC. 2012

Suggested Citation

  • Nicola Giocoli, 2012. "Who Invented the Lerner Index? Luigi Amoroso, the Dominant Firm Model, and the Measurement of Market Power," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(3), pages 181-191, November.
    • Handle: RePEc:kap:revind:v:41:y:2012:i:3:p:181-191
    DOI: 10.1007/s11151-012-9355-7
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    References listed on IDEAS

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    1. Christoph Schenzler & John J. Siegfried & William O. Thweatt, 1992. "The History of the Static Equilibrium Dominant Firm Price Leadership Model," Eastern Economic Journal, Eastern Economic Association, vol. 18(2), pages 171-186, Spring.
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    9. Heinrich von Stackelberg, 2011. "Market Structure and Equilibrium," Springer Books, Springer, number 978-3-642-12586-7, June.
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    11. A. P. Lerner, 1934. "The Concept of Monopoly and the Measurement of Monopoly Power," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 1(3), pages 157-175.
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    Cited by:

    1. Lawrence J. White, 2012. "Market Power: How Does it Arise? How is it Measured?," Working Papers 12-06, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Neukirch Arne & Wein Thomas, 2019. "Price Gouging at the Pump? The Lerner Index and the German Fuel Market," Review of Economics, De Gruyter, vol. 70(2), pages 157-192, August.
    3. Spierdijka, Laura & Zaourasa, Michalis, 2018. "Measuring banks’ market power in the presence of economies of scale: A scale-corrected Lerner index," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 40-48.
    4. Laura Spierdijk & Michalis Zaouras, 2017. "The Lerner index and revenue maximization," Applied Economics Letters, Taylor & Francis Journals, vol. 24(15), pages 1075-1079, September.
    5. Lawrence J. White, 2013. "Monopoly and Dominant Firms: Antitrust Economics and Policy Approaches," Working Papers 13-13, New York University, Leonard N. Stern School of Business, Department of Economics.
    6. Jose E. Gomez-Gonzalez & Sebastian Sanin-Restrepo & Cesar E. Tamayo & Oscar M. Valencia, 2023. "Bank market power and firm finance: evidence from bank and loan-level data," Economic Change and Restructuring, Springer, vol. 56(6), pages 4629-4660, December.
    7. Drolsbach, Chiara Patricia & Gail, Maximilian Maurice & Klotz, Phil-Adrian, 2023. "Pass-through of temporary fuel tax reductions: Evidence from Europe," Energy Policy, Elsevier, vol. 183(C).
    8. Shaffer, Sherrill & Spierdijk, Laura, 2020. "Measuring multi-product banks’ market power using the Lerner index," Journal of Banking & Finance, Elsevier, vol. 117(C).
    9. Lawrence J. White, 2020. "Antitrust Economics And Consumer Protection Economics In Policy And Litigation: Why The Disparity?," Economic Inquiry, Western Economic Association International, vol. 58(4), pages 1555-1564, October.
    10. Sheikh, Shahbaz, 2018. "CEO power, product market competition and firm value," Research in International Business and Finance, Elsevier, vol. 46(C), pages 373-386.

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    More about this item

    Keywords

    Dominant firm; History of industrial economics; Lerner index; Luigi Amoroso; Market power; B2; B3; L1;
    All these keywords.

    JEL classification:

    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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