Lerner Index Calculator

Calculate the Lerner index from price and marginal cost. Measure pricing power (0 to 1).

Use the Lerner Index Calculator

Enter price and marginal cost per unit. The Lerner index and markup % are calculated.

Inputs

Price (P) and marginal cost (MC) per unit.

Price per unit ($)

Marginal cost per unit ($)

Results

Lerner index

0.40

Markup %

66.7%

Lerner index = (P − MC) ÷ P, between 0 and 1. Higher values indicate more pricing power (ability to set price above marginal cost).

What this metric means

The Lerner index measures market power: how much price exceeds marginal cost. Used in economics and strategy to assess pricing power.

How to calculate it

Lerner = (P − MC) ÷ P. You need price per unit and marginal cost per unit. Use consistent units and the same period.

How to improve the metric

Increase perceived value (differentiation, brand), reduce price sensitivity, or lower marginal cost. More market power typically supports a higher index.

Common mistakes

Using average cost instead of marginal cost; mixing currencies or units; or applying to a product line without per-unit clarity.

How to interpret your result

Higher Lerner index = more pricing power. Near zero suggests commodity-like competition; near 1 suggests strong differentiation or monopoly-like position.

FAQs

What is the Lerner index?▾

Lerner index = (Price − Marginal cost) ÷ Price. It ranges from 0 (no pricing power) to 1 (maximum). Higher values mean the firm can set price well above cost.

How do I get marginal cost?▾

Marginal cost is the extra cost to produce one more unit. Use variable cost per unit as a practical proxy if you don't have exact marginal cost data.

What's a good Lerner index?▾

There's no single 'good' value. Compare to competitors or your own history. Rising Lerner index can indicate stronger pricing power or less competition.

How does it relate to markup?▾

Markup % = (P − MC) ÷ MC × 100. The Lerner index uses price in the denominator; both measure the gap between price and cost.

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Use the Lerner Index Calculator

Enter price and marginal cost per unit. The Lerner index and markup % are calculated.

Inputs

Price (P) and marginal cost (MC) per unit.

Price per unit ($)

Marginal cost per unit ($)

Results

Lerner index

0.40

Markup %

66.7%

Lerner index = (P − MC) ÷ P, between 0 and 1. Higher values indicate more pricing power (ability to set price above marginal cost).

FAQs

What is the Lerner index?▾

Lerner index = (Price − Marginal cost) ÷ Price. It ranges from 0 (no pricing power) to 1 (maximum). Higher values mean the firm can set price well above cost.

How do I get marginal cost?▾

Marginal cost is the extra cost to produce one more unit. Use variable cost per unit as a practical proxy if you don't have exact marginal cost data.

What's a good Lerner index?▾

There's no single 'good' value. Compare to competitors or your own history. Rising Lerner index can indicate stronger pricing power or less competition.

How does it relate to markup?▾

Markup % = (P − MC) ÷ MC × 100. The Lerner index uses price in the denominator; both measure the gap between price and cost.