What is a concentration ratio?

A concentration ratio is the ratio of the combined market shares of a given number of firms to the whole market size. It is commonest to consider the 3-firm, 4-firm or 5-firm concentration ratio. Concentration ratios are used to assess the extent to which a given market is oligopolistic.

 Although there is no definitive ‘rule’ about what ratio constitutes an oligopoly, a 4-firm concentration ratio of over 60% would indicate a highly oligopolistic market.