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AN EXTENSION OF LERNER'S MONOPOLY INDEX FOR MARKETS WITH A DISPARITY BETWEEN LONG‐ AND SHORT‐RUN DEMAND ELASTICITIES
Author(s) -
JUSTMAN MOSHE
Publication year - 1987
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1987.tb00769.x
Subject(s) - economics , monopoly , context (archaeology) , microeconomics , short run , schedule , lerner index , econometrics , market power , paleontology , management , biology
This paper develops a theoretical analysis of steady state monopoly pricing in markets with a disparity between long‐ and short‐run demand elasticities, based on a separation between the long‐run demand schedule and the adjustment process that underlies actual demand levels. This sheds light, in a practical context, on the impact of the speed of adjustment and the firm's discount rate on its equilibrium markup; and on the measurement of realized monopoly power. An illustrative application of the analysis to existing empirical data supplements the theoretical presentation.