Identification of Market Structure – Concentration Ratio

The concentration ratio is a measure used to identify the market structure of an industry. It is calculated as the percentage of market share held by the largest firms in the industry. The higher the concentration ratio, the more concentrated the market structure is.

A concentration ratio of 0% indicates perfect competition, where no firm has a dominant market share. A concentration ratio of 100% indicates a monopoly, where a single firm controls the entire market.

In general, a concentration ratio above 50% indicates an oligopoly, where a few large firms dominate the market. A concentration ratio below 50% indicates a monopolistic competition, where many firms compete with each other but none has a dominant market share.

The concentration ratio can be used to identify the competitiveness of an industry and to assess the potential for market power and anti-competitive behavior. It is also useful in regulatory and antitrust analysis.