From Lerner's Index To Market Segmentation Index (MSI)
Assumption 1: Marginal costs for the monopolist firm are the same for every market segment
Applying Lerner index L=(P-MC)/P to two distinctive market segments we get the degree of monopoly power in market segment Ms as Ls=(Ps-MC)/Ps and Mp as Lp=(Pp-MC)/Pp. Ps is the price charged in Ms while Pp is the price charged in Mp.
This result confirms the validity of the market segmentation index, which is a comparative measure of the degree of monopoly power in two distinctive markets for products that have the same marginal costs. The result says that when the price in the primary market is strictly greater than the price in the secondary market then the Lerner's index is higher in the primary market and therefore the market segmentation index would also be higher for the primary market.
Read more about this topic: Market Segmentation Index
Famous quotes containing the words lerner, index and/or market:
“You see what happens today. Women act like men and want to be treated like women.”
—Alan Jay Lerner (1918–1986)
“Exile as a mode of genius no longer exists; in place of Joyce we have the fragments of work appearing in Index on Censorship.”
—Nadine Gordimer (b. 1923)
“It is a sign of our times, conspicuous to the coarsest observer, that many intelligent and religious persons withdraw themselves from the common labors and competitions of the market and the caucus, and betake themselves to a certain solitary and critical way of living, from which no solid fruit has yet appeared to justify their separation.”
—Ralph Waldo Emerson (1803–1882)