What is the concentration ratio in oligopoly?

The concentration ratio in oligopoly refers to the measure of market concentration or the extent to which a few large firms dominate the market. It is calculated by summing the market shares of the largest firms in the industry. The concentration ratio is typically expressed as a percentage.

In oligopoly, where a small number of firms control a significant portion of the market, the concentration ratio can provide insights into the level of competition and market power within the industry. A higher concentration ratio indicates a more concentrated market, with a few dominant firms, while a lower concentration ratio suggests a more competitive market with a larger number of firms sharing the market.

The concentration ratio can be classified into different levels, such as a 4-firm concentration ratio or an 8-firm concentration ratio, depending on the number of firms considered. For example, a 4-firm concentration ratio of 80% means that the four largest firms in the industry collectively hold an 80% market share.

It is important to note that the concentration ratio alone does not provide a complete picture of market competitiveness. Other factors, such as barriers to entry, product differentiation, and the presence of collusion or strategic behavior among firms, also influence the level of competition in oligopoly markets.