ANALYSIS OF CEMENT INDUSTRY
PRAXIS BUSINESS SCHOOL Page 3
Industry Concentration: India and Infrastructure
The concentration of firms in an industry is of interest to economists, business strategists, andgovernment agencies. Here, we discuss two commonly-used methods of measuring industryconcentration: the Concentration Ratio and the Herfindahl-Hirschman Index.
In Economics the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration ratio, whichconsists of the market share, as a percentage, of the four largest firms in the industry. In general, theN-firm concentration ratio is the percentage of market output generated by the N largest firms inthe industry.The concentration ratio has a fair amount of correlation to the Herfindahl index, another indicator of firm size.Some examples of the four-firm concentration ratio include:
Traditional agriculture: Less than 5%
Sheet metal: 9%
Asphalt paving: 15%
Soap and detergents: 63%
Men's slacks: 75%
Greeting cards: 84%
Cigarettes: 99%Market forms can often be classified by their concentration ratio. Listed, in ascending firm size, theyare:
Perfect competition, with a very low concentration ratio,
Monopolistic competition, below 40% for the four-firm measurement,
Oligopoly, above 40% for the four-firm measurement, (Example automobile manufacturers)
Monopoly, with a near-100% four-firm measurement.