Key terms
- Concentration ratio
- A concentration ratio measures the combined market share, or percentage of total industry sales, of the largest firms in a market.
- Market share
- Market share is each firm's proportion of total sales in a market, usually given as a percentage.
A concentration ratio adds up the shares of the largest few firms
To find a four-firm concentration ratio, rank the firms by market share and add the shares of the largest four. The number of firms counted is part of the name: a three-firm or five-firm ratio adds the top three or five. The answer is a percentage of the whole market. A ratio near 100 per cent means a few firms have almost all the sales; a low ratio means sales are spread across many.