Jan

28

 One recently updated my collection of microeconomics textbooks with Microeconomics by David Besanko and Ronald Braeutigan which is the standard text at the University of Chicago Business School. I still like the Microeconomics text by Pashigian (price theory and applications), Landsburgh "Price Theory and Applications", Cowen "Modern Principles" and Heyne "The Economic Way of Thinking" (12th edition" best.

It was amazing to me how little has changed in the way of intermediate microeconomics since I last took such a course 50 years ago. However, one concept that I had not come across in my previous studies was the Lerner Index of market power. It's the amount above marginal cost that your price is at relative to price. I looked to see if it's been measured for stock market companies but it only seems to have been used in the banking and telephone industry, although it's supposedly the standard used in anti trust cases. It would seem to be 100% correlated with profit margins and the Longman index of price to weight.

One wonders if such empirical indexes are associated with superior stock market performance under certain regimes. As mentioned, I am a great disbeliever in all studies of market performance relative to value versus growth, small versus big, accruals versus non accruals, superior versus inferior past performance, and of course all long versus short strategies (because it loses the drift), because of errors of retrospection, muticollinearity, and changes of regimes. However, I think such a study of profit margins using contemporaneous data only (available in the weekly value lines), would be worthwhile.


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