What is the 'Concentration Ratio'
The concentration ratio, in economics, is a ratio that indicates the size of firms in relation to their industry as a whole. Low concentration ratio in an industry would indicate greater competition among the firms in that industry, compared to one with a ratio nearing 100%, which would be evident in an industry characterized by a true monopoly.
BREAKING DOWN 'Concentration Ratio'
The concentration ratio indicates whether an industry is comprised of a few large firms or many small firms. The fourfirm concentration ratio, which consists of the market share of the four largest firms in an industry, expressed as a percentage, is a commonly used concentration ratio. Contrary to the fourfirm concentration ratio, the eightfirm concentration ratio is calculated for the market share of the eight largest firms in an industry.Concentration Ratio Formula and Interpretation
The concentration ratio is calculated as the sum of the market share percentage held by the largest specified number of firms in an industry. The concentration ratio ranges from 0% to 100%, and an industry's concentration ratio indicates the degree of competition in the industry. A concentration ratio that ranges from 0% to 50% may indicate that the industry is perfectly competitive, though the industry may be an oligopoly if the ratio is near 50%. A ratio between 0% and 50% is considered low concentration.
Medium concentration occurs when an industry's ratio ranges from 50% to 80%. This indicates that the industry is an oligopoly. High concentration occurs when the concentration ratio ranges from 80% to 100%, a level that indicates the industry is an oligopoly. If the concentration ratio of one company is equal to 100%, this indicates that the industry is a monopoly.
Example Calculation
Assume that ABC Inc., XYZ Corp., GHI Inc. and JKL Corp. are the four largest companies in the biotechnology industry, and an economist aims to calculate the degree of competition. For the most recent fiscal year, ABC Inc., XYZ Corp., GHI Inc. and JKL Corp. have market shares of 10%, 15%, 26% and 33%, respectively. Consequently, the biotech industry's fourfirm concentration ratio is 84%. Therefore, the ratio indicates that the biotech industry is an oligopoly. The same could be calculated for more or less than four of the top companies in the industry. The concentration ratio only indicates the competitiveness of an industry and whether an industry follows an oligopolistic market structure. The Herfindahl index, another indicator of firm size, has a fair amount of correlation to the concentration ratio and may be a better measure of market concentration.

Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Concentration Bank
A financial institution that is the primary bank of an organization, ... 
Ratio Analysis
A ratio analysis is a quantitative analysis of information contained ... 
Combined Ratio
A measure of profitability used by an insurance company to indicate ... 
Accounting Ratio
A way of expressing the relationship between one accounting result ... 
Key Ratio
A mathematical ratio that illustrates and summarizes the current ...

Markets
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. 
Investing
Key Financial Ratios to Analyze Biotech Companies (AMGN, GILD)
Explore the rapidly growing biotechnology industry, and learn some of the key financial ratios investors use to analyze companies in the industry. 
Investing
Why do Debt to Equity Ratios Vary From Industry to Industry?
Obtain a better understanding of the debt/equity ratio, and learn why this fundamental financial metric varies significantly between industries. 
Investing
Financial Ratios to Spot Companies Headed for Bankruptcy
Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy. 
Investing
Concentrated Funds: Here's What to Know
Concentrated funds can help clients achieve returns with a smaller base of diversification than traditional funds. Here's what you should know about them. 
Investing
Efficiency Ratio
There are many types of efficiency ratios, but all measure how well a company utilizes its resources to make a profit. Business managers use these ratios to determine how well they are operating ... 
Trading
Ratio Analysis
Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ... 
Trading
The Price To Earnings Ratio Explained
The price to earnings ratio is one of the most important ratios in investing. Find out how it is calculated, how it can be used and what it tells investors about a particular stock. 
Investing
Key Financial Ratios to Analyze The Automotive Industry
Learn about the most critically important financial ratios investors and market analysts utilize to evaluate companies in the automotive industry. 
Markets
Do Your Investments Have ShortTerm Health?
If a company is strong enough to survive tough times, it is more likely to provide longterm value.

How do stock dividends affect the retained earnings account?
Understand the difference between financial ratio analysis and accounting ratio analysis. Learn why ratio analysis is important ... Read Answer >> 
What role does ratio analysis play in valuing a company?
Learn about the role of ratio analysis in determining company value, including some of the most common ratios used by modern ... Read Answer >> 
Which financial metrics are best for analyzing companies in the chemicals sector?
Learn about some of the key financial metrics that investors and market analysts commonly use to evaluate companies in the ... Read Answer >> 
To what extent should you take a company's liquidity ratio into account before investing ...
Find out how important it is for an investor to know a company's liquidity ratio before deciding to invest, and why relying ... Read Answer >> 
How can a company quickly increase its liquidity ratio?
Discover what high and low values in the liquidity ratio mean and what steps companies can take to improve liquidity ratios ... Read Answer >> 
How do I use ratios to perform a financial analysis?
Learn which ratios are used in fundamental analysis. Find out how analysts measure company performance and financial health ... Read Answer >>