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

Monopoly (economics) | Imperfect competition

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