Concentration ratio Totally Explained

Everything about Concentration Ratio totally explained

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.
UK industries with the highest five-firm concentration ratios include:

Sugar: 99%
Tobacco products: 99%
Gas distribution: 82%
Oils and fats: 88%
Confectionary: 81%
Man-made fibres: 79%
Coal extraction: 79%
Soft drinks and mineral waters: 75%
Pesticides: 75%
Weapons and ammunition: 77%

UK industries with the lowest five-firm concentration ratios include:

Metal forging, pressing etc.: 4%

Plastic products: 4%

Furniture: 5%

Construction: 5%

Structural metal products: 6%

Wholesale distribution: 6%

General purpose machinery: 8%

Wood and wood products: 9% 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% for the four-firm measurement,

Oligopoly, above 40% for the four-firm measurement, (Example automobile manufacturers)

Monopoly, with a near-100% four-firm measurement. Further Information

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