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%
* Sheet metal: 9%
* Asphalt paving: 15%
* Typesetting: 16%
* Publishing: 23%
* Soap and detergents: 63%
* Men's slacks: 75%
* Aircraft: 79%
* Greeting cards: 84%
* Cigarettes: 93%
* Escalators: ??%

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- Boeing and Airbus in jetliners)
* Monopoly, with a near-100% four-firm measurement. (Example- Microsoft in PC operating systems)

See also

*Market form
*Herfindahl index
*Microeconomics
*Market dominance strategies