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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]
Examples are Cournot oligopoly, and Bertrand oligopoly for differentiated products. Bain's (1956) original concern with market concentration was based on an intuitive relationship between high concentration and collusion which led to Bain's finding that firms in concentrated markets should be earning supra-competitive profits .
In particular, the definition of the concentration ratio does not use the market shares of all the firms in the industry and does not account for the distribution of firm size. Also, it does not provide much detail about competitiveness of an industry. [1] The following example exposes the aforementioned shortfalls of the concentration ratio.
He cites examples of horizontal, vertical, crossed and "in cross" concentration (a Brazilian peculiarity). [38] Horizontal concentration: oligopoly or monopoly produced within an area or industry; television (pay or free) is the Brazilian classical model.
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 example, an index of .25 is the same as 2,500 points. The major benefit of the Herfindahl index in relation to measures such as the concentration ratio is that the HHI gives more weight to larger firms. Other advantages of the HHI include its simple calculation method and the small amount of often easily obtainable data required for the ...
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 Herfindahl Index provides a measure of firm concentration within a market and is the sum of the squared market shares of all the firms in the market (Herfindahl Index = (S i) 2, where S i = market share of firm i) . Large companies are given more weight in the index (unlike the N-concentration ratio). [15]