Measurement of Market Structure

Concentration Ratio

4-Firm CR: Steps to compute:

1.Definition of industry

2.Arrange all firms in ascending order of sales

3. compute the share of the top 4 firms in the total sales

The CR ratio will thus be expressed as 0.4 or 0.6 or 40% or

60%.

Interpretation:
The higher this is the greater the degree of
concentration.
this also means that competition is lower
where CR is higher.

H - Index

Steps to compute the Index:

1. Steps 1 and 2 of CR computation.
2. Compute the share of each firm in the total sales
of the industry.

3. Square these shares.

4. Find the sum of these squared shares.

Four categories

< 0.2 Perfect comp

< 0.2 with product differentiation
monopolistic competition.
0.2 0.6 Oligopoly
0.6 an d above Monopoly

This measure is used by Anti-Trust authorities to see

the impact on:

-Structure (intensity of competition) of any move by

the players like:
-Mergers, acquisitions, etc.

Any conduct that significantly affects the structure,

is challenged by The commission.