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How do you calculate the four-firm concentration ratio?

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Quick Answer

The four-firm concentration ratio for a given industry is the sum of the market share percentages of that industry’s four largest firms. In general, a concentration ratio measures the total output, in terms of market share, for a given number of firms at the top of a given industry.

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Full Answer

The concentration ratio can vary from 0 to 100 percent. A ratio of 100 percent indicates total concentration, or an extreme oligopoly, which is total industry domination by a small number of firms. A ratio between 0 and 50 percent indicates low concentration. Industries at the lower end of this range enjoy perfect competition, while those at the high end may represent an oligopoly. Concentration ratios above 50 percent are usually indicative of this to some degree.

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