Reference no: EM132415570

Based on: A host of best-selling books advance the thesis that increases in conglomerate mergers and concentration of U.S. industry are responsible for "obscene profits." By using the Lerner Index. 

The statement: Learner index is a tool used in economic research and analysis that measures the market power of an individual business or company (Turner, 2019). The value of Lerner Index consists of 1, indicating a powerful firm that is likely to create a monopoly, verses 0, a firm in a competitive market that has no power in controlling price and market value of its product (Turner, 2019). In order to determine the Lerner index value of a firm, the marginal cost (MC) is deducted from the Market Price (P) divided by the Price (P). Conglomerate mergers as we have identified in this chapter is when a firm that produces a particular product merges with a firm that produces a dissimilar or unrelated product (Baye & Prince, 2014). Big companies who has the funds to integrate conglomerate tend to be responsible for "obscene profits", since their Learner index value is 1, indicating they are a monopoly company. They have a better understanding of price elasticity; therefore, they can be a big threat to the industry by controlling prices in the market. I do agree that these companies are responsible for obscene profits, however, thanks to the Lerner index, governments may determine a firm's market power and intervene if they feel monopolistic firms are engaged in predatory pricing, or disabling new entrants into the industry (Turner, 2019). The government's interference will introduce fairness amongst other firms in the industry and will deplete the monopoly effect.

What do you think the statement that I mentioned? above?