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