How do you calculate CR4 concentration ratio?
Add together the total sales for each of the four largest firms in your selected industry. Then divide that sum by the total sales of the industry. Convert that result to a percentage, and that percentage value is the four-firm concentration ratio.
What is CR4 and HHI?
Among the several indices proposed in the literature, the Herfindahl-Hirschman Index (HHI) and the Four-firm concentration ratio (CR4) are among the most established. However, the HHI requires the market shares of all market players to be known, while the CR4 requires just the top four.
What is meant by concentration ratio?
Introduction. Concentration ratio indicates the level of competition between firms comprised in an industry. It is the ratio of the size of the firms to the entire industry. A high concentration ratio closer to 100% indicates the existence of a monopoly in an industry or lack of competition to such firms..
What is the 3 firm concentration ratio?
Definition of Concentration Ratios The percentage of market share taken up by the largest firms. It could be a 3 firm concentration ratio (market share of 3 biggest) or a 5 firm concentration ratio. Concentration ratios are used to determine the market structure and competitiveness of the market.
What is an example of an oligopoly?
Oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel.
What are the values of CR4 that distinguish between different categories of competition?
CR4 values below 40% were in turn considered to represent a competitive market, values between 40 and 60% a market with limited competition and values above 60% were considered to indicate markets with limited competition and dominant firms in place [25] .
What is concentration ratio used for?
The concentration ratio compares the size of firms in relation to their industry as a whole. Low concentration ratio indicates greater competition in an industry, compared to one with a ratio nearing 100%, which would be a monopoly.
What is a concentration ratio example?
Example Calculation If the four companies have less than 60% as the aggregate market share, that means competition exists in the market. A perfectly competitive industry is attained when there is a concentration ratio of 0% to 50%.
What is a high concentration ratio?
a. A high concentration ratio indicates that a few firms produce most of the industry output and may indicate a significant amount of market power in the industry. If an industry with a high concentration ratio faces significant foreign competition, it may behave competitively.
What is the 4 firm concentration ratio?
A four-firm concentration ratio is one way of measuring the extent of competition in a market. It is calculated by adding the market shares—that is, the percentage of total sales—of the four largest firms in the market.
Which is greater the CR4 or the concentration ratio?
Thus higher the CR4 greater is the concentration of market power. It simply adds the market share of the top 4 firms. No consideration is given to the fact that the largest of the top 4 firms could be 10 times larger than the smallest of the top four. For example in the sneaker industry:
How is the HH index related to the CR4?
It is a more advanced measure of market concentration (relative to the CR4). It includes the market share of every firm in the industry, not only the top four. The HH index is the sum of the squares of the market share of every firm in the industry. The higher the HH index, the more concentrated is the market.
How is the eight firm concentration ratio calculated?
Similar to the four-firm concentration ratio, the eight-firm concentration ratio is calculated for the market share of the eight largest firms in an industry. The three-firm and five-firm are two more concentration ratios that can be used.
How are concentration ratios used in the real world?
Concentration rules are only one method of evaluating the condition of a market. Both the four-and-eight-firm concentration ratios provide merely an estimate, rather than a concrete measure of actual market dominance.