One of the characteristics of this model is that of a "high" concentration ratio defined as the percentage market share belonging to the top 4 (top 8, top 20, or top 50) firms in the industry. For example, the CR4 measures the market share of the largest 4 firms in their respective industry, the CR8 measures the market share of the largest 8 firms, and so on .......
The term "high" CR4 is relative (as is the term "few" which measures the number of firms in the industry). In fact, whether an industry is considered "oligopolistic" or not, depends on the combination of two concepts interacting together --- the number of firms in the industry as well as the industry's concentration ratio.
Hypothetically, suppose there are 7 firms in the Chewing Gum Industry (listed in alphabetical order) where the percentage market share of each firm is as follows:
Firm A = 40%
Firm B = 5%
Firm C = 20%
Firm D = 6%
Firm E = 25%
Firm F = 2%
Firm G = 2%
Find the CR4. Find the CR8.
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As mentioned above, the interaction of the number of firms in the industry together with the industry's CR4 will determine what type of market structure an industry is part of. Consider the following data published by the U.S. Census Bureau in their Annual Survey of Manufacturers (2007 data):
Industy; number of firms; CR4
Data to follow.
[An aside: Concentration in an industry is also measured by the Herfandahl-Hirshmann Index.]
