Industry Concentration
![]() |
Updated on Tuesday, May 02, 2017
,

tags # # #
Concentration Ratio
The concentration ratio is the percentage of market share owned by the largest m firms in an industry, where m is a specified number of firms, often 4, but sometimes a larger or smaller number. The concentration ratio often is expressed as CRm, for example, CR4.
The concentration ratio can be expressed as:
CRm = s1 + s2 + s3 + ... ... + sm
where si = market share of the ith firm
If the CR4 were close to zero, this value would indicate an extremely competitive industry since the four largest firms would not have any significant market share.
In general, if the CR4 measure is less than about 40 (indicating that the four largest firms own less than 40% of the market), then the industry is considered to be very competitive, with a number of other firms competing, but none owning a very large chunk of the market. On the other extreme, if the CR1 measure is more than about 90, that one firm that controls more than 90% of the market is effectively a monopoly.
While useful, the concentration ratio presents an incomplete picture of the concentration of firms in an industy because by definition it does not use the market shares of all the firms in the industry. It also does not provide information about the distribution of firm size. For example, if there were a significant change in the market shares among the firms included in the ratio, the value of the concentration ratio would not change.Herfindahl-Hirschman Index
The Herfindahl-Hirschman Index provides a more complete picture of industry concentration than does the concentration ratio. The HHI uses the market shares of all the firms in the industry, and these market shares are squared in the calculation to place more weight on the larger firms. If there are n firms in the industry, the HHI can be expressed as:HHI = s12 + s22 + s32  + ... ... + sn2
where si is the market share of the ith firm.
Unlike the concentration ratio, the HHI will change if there is a shift in market share among the larger firms.
The Herfindahl-Hirschman Index is calculated by taking the sum of the squares of the market shares of every firm in the industry. For example, if there were only one firm in the industry, that firm would have 100% market share and the HHI would be equal to 10,000 -- the maximum possible value of the Herfindahl-Hirschman Index. On the other extreme, if there were a very large number of firms competing, each of which having nearly zero market share, then the HHI would be close to zero, indicating nearly perfect competition
The U.S. Department of Justice uses the HHI in guidelines for evaluating mergers. An HHI of less than 1000 represents a relatively unconcentrated market, and the DOJ likely would not challenge a merger that would leave the industry with an HHI in that range. An HHI between 1000 and 1800 represents a moderately concentrated market, and the DOJ likely would closely evaluate the competitive impact of a merger that would result in an HHI in that range. Markets having an HHI greater than 1800 are considered to be highly concentrated; there would be serious anti-trust concerns over a proposed transaction that would increase the HHI by more than 100 or 200 points in a highly concentrated market.
Other Considerations in Using Industry Concentration Measures
One should be aware that these measures are influenced by the definition of the relevant market. For example, the automotive industry is not the same as the market for sport utility vehicles. One also must consider the geographic scope of the market, for example, national markets versus local markets.
This page has a focus on , was shared by .
- 7 B2B Marketing Strategies Examples For Long-term Success
- Six Steps for an Effective B2B Content Marketing Strategy
- Five Steps To Making Sales Through Social Media
- Why B2B Marketers Still Struggle at Conversion Optimization of Leads
- LinkedIn lead generation. 3 Simple Steps that can Swiftly Increase Linkedin Lead Generation
- A 3 step guide to get started on LinkedIn Sales Navigator
- LinkedIn Sales Navigator, GMail & CRM: Working Together to Boost Sales
- The Top 12 LinkedIn Tools to Improve Sales Prospecting
- 6 Advanced LinkedIn Prospecting Tactics that help Sales Reps to boost sales
- How Your Team Can Make the Most of LinkedIn Sales Navigator
- How to use LinkedIn effectively as a personal CRM system
- Quality features to look for in a B2B CRM System
- Tools and services for B2B marketers on Social Media Marketing
- 5 Ways of using B2B CRM To Achieve Best Marketing Growth
- Important Lessons for B2B technology PR from Donald Trump’s Campaign
- LinkedIn Sales Navigator Cost: How to decide if It's Worth It
- Which B2B Social Media Network is Best for your Marketing Strategy?
- How to Leverage CRM for B2B Content Marketing
- 10 Essential B2B Social Media Tools for Efficient Marketing
- B2B MARKETING IDEAS: THE SKYSCRAPER TECHNIQUE
- B2B Lead Generation Tactics in Commercial Insurance Markets
- B2B Social Media Marketing: Smart Ways to Generate Leads
- B2B Video Marketing: Best Practices to engage customers and improve conversion
- B2B SEO: Best Practices
- B2B Social Selling: Making a Foolproof Plan
- B2B Marketing Automation Market Trends
- B2B Marketing Automation: 6 Steps to Select the Best Platform
- 6 Important Tips to Use Twitter for B2B Social Selling
- B2B Magazines: Top Trends and Challenges for Marketers
- B2B Websites: Best Practices to Increase Traffic and Conversion Rates
- B2B Lead Generation Company: How to choose to get the best results?
- B2B Telemarketing: 7 Tips to Boost Lead Generation
- B2B Email Marketing: 10 Quick Tactics for Lead Generation
- B2B Email Marketing Strategy: 6 Best Practices for Sure-Shot Results
- Top 5 B2B Marketing Tools to Leverage for Automation
- A Few Ways Marketers Fail in B2B Telemarketing
- 5 B2B Content Marketing Strategies for Effective Lead Generation
- Buying Email Lists for B2B Email Marketing? Bad Idea. Build an Email List of Your Own
- Top 9 Effective B2B Facebook Marketing Strategies
- Marketing Strategies for Optimum B2B Lead Generation
- 7 Ideas to Engage a B2B Audience via Instagram
- Aren't You Using Quora for B2B Marketing?
- 7 Actionable Tips for B2B Reddit Marketing
- 5 Benefits of Business Process Management that you must consider
- 5 Essentials for a successful Business Process Mapping
- 5 Major Business Problems that Business Process Automation Solves
- Marketing Stats of 2016 Offer Clues to Actionable B2B Marketing Strategy for 2017
- Trends in Marketing Automation Technology- Asia that you must know
- Synchronizing Sales & Marketing for a Successful B2B Marketing Campaign
- 5 Important Components of Client Relationship Management
- Why Readership on Your Digital Publishing Platform is Dropping
- 7 things to know about B2B commerce
- Digital Ecosystem Maps for Digital Marketing Success
- Advantages of Business Process Mapping
- Supplier Relationship management for procurement challenges
- Are you a Business Owner? 5 Benefits of Using CRM Software
- B2B Lead Generation Strategies for 2020
- Generating Leads Using LinkedIn
- Digital ecosystem for e commerce players
- What is a B2B e commerce platform
- Top 10 Benefits of B2B E-commerce