Concentration ratio definition

An industry’s concentration ratio is the size of a certain number of firms in an industry compared to its total size. It is used to calculate one or more firms’ dominance of their sector.

Concentration ratios tend to feature on economic research and reports, and are displayed as an equation. The number of companies being taken into account in the concentration ratio is displayed in superscript next to the letters CR. The most common ratios are CR4 and CR8, indicating comparative output of the four and eight biggest firms in a sector compared to the rest respectively. CR1, on the other hand, is the comparative size of the single biggest firm in an industry.

CR is represented as a percentage, with 0% meaning that competition is completely equal between companies, and 100% indicating a full monopoly (in the case of CR1=100) or oligopoly if more firms are taken into account.

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