The Concentration ratio reference article from the English Wikipedia on 24-Apr-2004 (provided by Fixed Reference: snapshots of Wikipedia from wikipedia.org)

Concentration ratio

In economics, the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage, of the four largest firms in the industry. In general, the N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry.

The concentration ratio has a fair amount of correlation to the Herfindahl index, another indicator of firm size.

Some examples of the four-firm concentration ratio include:

• Traditional agriculture: Less than 5 percent
• Sheet metal: 9 percent
• Asphalt paving: 15 percent
• Typesetting: 16 percent
• Publishing: 23 percent
• Soap and detergents: 63 percent
• Men's slacks: 75 percent
• Aircraft: 79 percent
• Greeting cards: 84 percent
• Cigarettes: 93 percent

Market forms can often be classified by their concentration ratio. Listed, in ascending firm size, they are:

• Perfect competition, with a very low concentration ratio,
• Monopolistic competition, below 40 percent for the four-firm measurement,
• Oligopoly, above 40 percent for the four-firm measurement, and
• Monopoly, with a near-100 percent four-firm measurement.

See also: Market form, Herfindahl index, Microeconomics, Market dominance strategies

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