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When a single firm accounts for 100 percent of industry sales it is an example of monopoly.
What is concentration ratio?
The concentration ratio reveals whether a sector of the economy is made up of a few major or numerous small businesses. A frequently used concentration ratio is the four-firm concentration ratio, which is composed of the market share of the four largest businesses in an industry, represented as a percentage. The eight-firm concentration ratio, which is derived using the market shares of the eight biggest companies in an industry, works similarly to the four-firm concentration ratio. Two other concentration ratios that can be employed are the three-firm and five-firm ratios.
How is concentration ratio calculated?
The market share percentages owned by the biggest specified number of businesses in an industry are added to determine the concentration ratio. The concentration ratio, which goes from 0% to 100%, provides information on how competitive a certain industry is. The industry may be completely competitive if the concentration ratio is between 0% and 50%, which is regarded as a low concentration.
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