What is a concentration ratio?
The ratio of concentration is an economic tool used to determine the amount of competition on the economic market. The most common formula for this economic tool is the Herfindahl index and the ratio of four solid or eight mainland concentration. The concentration ratio will measure the total production production for a specific number of companies in the business industry or industry. The purpose of this ratio is to determine the amount of market control that the main companies have in the industry. The industries or industries, dominated by several major companies, are considered to be oligopol, indicating few suppliers for consumer goods or services. Each company can set up its business decisions at other companies in the Oligopolistic Industry.Etice and an increase in market share for the largest companies in the industry. Economists usually use 0.18 as a point in the Herfindahl index, in which the industry has a high concentration of dominant companies. One company that constantly dominates the market will have a monopoly that usually represents the non -notImproved position for consumer prices.
As an example, five market shares have 30%, 30%, 20%, 15%and 5%. The Herfindahl index is calculated as 30^2, 30^2, 20^2, 15^2, 5^2, which leads to an index of 0.245. This points to the industry with a high concentration of dominant companies.
The ratio of four fixed or eight mainland concentrations is calculated much easier than the Herffhahl index. Each of these situation takes the first four or eight companies in the industry and summarizes the overall market share for each company. The ratio of four or eight mainland concentration will be a range from 0 to 100%. Industry with 0%because the total market share does not have a market concentration and represents an industry where no company dominates the market. This is often considered a perfect competition. The industry with a total of 100%, because the sum of market shares equals the overall market concentration. This is a classic example of oligopol because the market dominates four or eightfirms. Low market concentration is perceived as 0 to 50%, medium concentration with 50 to 80%and high market concentrations with 80 to 100%.