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Concentration Ratio Formula:
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The Concentration Ratio (CR) is a measure used in economics to show the extent of market control held by a certain number of firms in an industry. It indicates the combined market share of the top firms in a particular market.
The calculator uses the Concentration Ratio formula:
Where:
Explanation: The ratio shows what percentage of the total market is controlled by the top firms. Higher values indicate more concentrated markets.
Details: Concentration ratios are crucial for market analysis, antitrust regulation, and understanding competitive dynamics. They help identify monopolistic or oligopolistic market structures.
Tips: Enter the combined output/sales of the top firms and the total market output/sales in the same units. Both values must be positive, and the sum of top firms cannot exceed the total market.
Q1: What does a high Concentration Ratio indicate?
A: A high CR indicates that a few firms dominate the market, which may suggest reduced competition and potential market power.
Q2: What are typical Concentration Ratio values?
A: CR values range from 0% to 100%. Values below 40% typically indicate competitive markets, while values above 60% suggest concentrated markets.
Q3: How many firms are typically included in the calculation?
A: Common measures include CR4 (top 4 firms) and CR8 (top 8 firms), but the number can vary based on industry characteristics.
Q4: What are the limitations of Concentration Ratio?
A: CR doesn't account for market share distribution among top firms or potential competition from foreign firms and doesn't consider product differentiation.
Q5: How does Concentration Ratio differ from HHI?
A: While CR measures combined market share of top firms, Herfindahl-Hirschman Index (HHI) squares individual market shares, giving more weight to larger firms.