Sonam Euden Industrial concentration refers to a structural characteristic of the business sector.

It is the degree to which production in an industry, economy as a whole is being dominated by a few large firms. Nowadays concentration is seen as an indicator of superior economic performance. Trends in concentration vary from industry to industry, but most changes in concentration proceed at a glacial pace. Some industries are more concentrated than others because of technical properties of their production technologies or unique characteristics of the markets they serve. Economies of scale, which allow firms to reduce their average costs as they increase their rates of output, favor large-scale production over small-scale production. Thus, industries for which scale economies are important are expected to be more concentrated than others in which costs do not fall as rapidly as output expands. Industrial concentration also is promoted by barriers to entry, which make it difficult for new firms to displace established firms. Barriers to entry are erected by governmentconferred privileges such as patents, copyrights and trademarks, exclusive franchises, and licensing requirements. Existing firms may possess other advantages over newcomers, including lower costs and brand loyalty, which make entry more difficult.