Concentration Ratio

DEFINITION of 'Concentration Ratio'

In economics, a ratio that indicates the relative 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 than 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 four-firm concentration ratio, which consists of the market share (expressed as a percentage) of the four largest firms in an industry, is a commonly used concentration ratio. The Herfindahl index, another indicator of firm size, has a fair amount of correlation to the concentration ratio.

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