The Cournot model.
wThe Lerner index of market power.
Antoine Augustin Cournot (1801-1877)
wCournot model with n identical firms.
Abba P. Lerner (1903-1982)
L =
1
nε
L =
P - MC
P
L = 0 is socially optimal – no market power.
ε is elasticity of demand.
wMarket power a smooth declining function of number of firms.
wL ® 0 as n ® ¥.
wMarket concentration equals market power.