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The and concentration ratios are commonly used. Concentration ratios show the extent of largest firms' market shares in a given industry. Specifically, a concentration ratio close to 0% denotes a low concentration industry, and a concentration ratio near 100% shows that an industry has high concentration.
Understanding the market concentration is important for firms when deciding their marketing strategy. As well, empirical evidence shows that there exists an inverse relationship between market concentration and efficiency, such that firms display an increase in efficiency when their relevant market concentration decreases. [24]
But as market shares of the 20-firm industry diverge from equality the Herfindahl can exceed that of the equal-market-share 3-firm industry (e.g., if one firm has 81% of the market and the remaining 19 have 1% each, then =). A higher Herfindahl signifies a less competitive (i.e., more concentrated) industry.
For example, a 4-firm concentration ratio measures the total market share of the four largest firms in an industry. In order to calculate the N-firm concentration ratio, one usually uses sales revenue to calculate market share, however, concentration ratios based on other measures such as production capacity may also be used. For a monopoly ...
N-firm concentration ratio, N-firm concentration ratio is a common measure of market structure. This gives the combined market share of the N largest firms in the market. [ 9 ] For example, if the 5-firm concentration ratio in the United States smart phone industry is about .8, which indicates that the combined market share of the five largest ...
The higher the four-firm concentration ratio is, the less competitive the market is. When the four-firm concentration ration is higher than 60, the market can be classified as a tight oligopoly. A loose oligopoly occurs when the four-firm concentration is in the range of 40-60. [21]
Retail concentration refers to the market-share generally belonging to the top 4 or 5 mass distribution firms present in a regional market, as a percentage of the total. Retail concentration is not simply a concentration ratio as is emerging in the food sector. This is due to two factors: the particular relevance retail is gaining on a global ...
The goal of many firms is to increase the patronage concentration ratio of its customers to 100%. Some firms set different patronage concentration targets for various classes of customers. This reflects the fact that some types of customers are more profitable than others. This is very similar to market share. Whereas market share describes the ...