Who Invented the Lerner Index? Luigi Amoroso, the Dominant Firm Model, and the Measurement of Market Power

Abstract

The invention of the price/cost margin (P-MC)/P as an index of market power is usually credited to Lerner (Rev Econ Stud 1(3):157–175, 1934). Landes and Posner (Harv Law Rev 94(5):937–996, 1981) is similarly often considered the main reference for the generalized version of the index in the case of a dominant firm that shares the market with price-taking rivals. From the viewpoint of the history of industrial economics both claims are incorrect. It was not Lerner who invented the price/cost margin index and the generalized version was fully derived before WWII. In both cases, priority should be given to Luigi Amoroso, the leading Italian mathematical economist in the interwar decades. In the latter case the names of Heinrich von Stackelberg and George Stigler also deserve credit.