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concentration ratio (CR)

Contributor(s): Ivy Wigmore

A concentration ratio (CR) is a metric used in economics to express the distribution of companies in a particular industry relative to the size of the market. The terms industry concentration ratio and market concentration ratio are sometimes used.

The most common application of the concentration ratio is exploring how much of the market is controlled by the top companies -- to find, for example, the four-firm concentration ratio (CR4) or the eight-firm concentration ratio (CR8).

The CR is expressed as a percentage. A CRn that is very low, where n represents any number of companies, expresses a market environment sometimes referred to as perfect competition, in which supply and demand balance naturally.

An environment in which five or fewer companies control 60 percent or more of a market (CR5=60%) is considered an oligopoly. A ratio of 100 percent (CR1=100%) indicates a total monopoly, in which a single company controls the entire market. A duopoly is defined as a situation in which two companies control a majority of the market (CR2=>50%).

Markets with low concentrations are considered competitive. Highly concentrated markets, which may result from market distortion, are considered anti-competitive and are generally not beneficial to consumers.

This was last updated in April 2019

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