Concentration ratio in economics is a measure of market power of dominant firms in a monopolistic or oligopolistic market. Concentration ratio or, more specifically, four-firm concentration ratio is the percent of total industry turnover accounted by the largest four firms in the industry. The concentration ration could be calculated for some other number of firs also. For example we can calculate eight-firm concentration ratio also. In a monopoly market there will be only one firm with concentration ratio of 100 percent.
In the question above, information is provided on turnover of four firms therefore we will calculate four-firm concentration ratio.
The total turnover of the four top firms is $32 million (10+9+8+5 = 32).
The total turnover of the industry is $105 million.
The turnover of the four top firms as percentage of industry turnover:
= (32/105) x 100 = 30.4762 %
Therefore four-firm concentration ratio for the given example is 30.4762 %.
Please note that a four firm concentration ration is considered to be at lower side of medium. Thus the market will qualify more as a fairly competitive market, rather than as a monopolistic market. At the most the market may be considered a oligopolistic market.
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