The structure-conduct-performance approach has led to attempts to quantitatively estimate the market power concentrated in the hands of a few firms in an industry.

Our analysis of monopoly suggests that market power creates a gap between marginal cost and price. This led economist Abba Lerner to propose the Lerner index of Monopoly Power (LMP), which is:

           

The LMP is zero for pure competitors because price equals marginal cost. Marginal cost and price in Figure 2 are both $30 at competitive output Qc (point a); LMP = (30 30)/30 = 0. The exercise of market power increases the Lerner index because the equilibrium gap between price and marginal cost rises. Monopoly output and price in Figure 2 are Qm and $50 respectively (point b), so LMP = (50 30)/50 = .40. While a rising LMP may reflect growing market power, the marginal cost data required to calculate this index are not generally available, requiring economists to turn to other measures of monopoly power.

 Figure 2