Market concentration

Competition law
Basic concepts
History of competition law Monopoly and oligopoly Coercive monopoly Natural monopoly Barriers to entry Herfindahl–Hirschman index Market concentration Market power SSNIP test Relevant market Merger control
Anti-competitive practices
Monopolization Collusion Formation of cartels Price fixing (cases) Bid rigging Tacit collusion Product bundling and tying Refusal to deal Group boycott Essential facilities Exclusive dealing Dividing territories Predatory pricing Misuse of patents and copyrights
Enforcement authorities and organizations
International Competition Network List of competition regulators
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In economics, market concentration is a function of the number of firms and their respective shares of the total production (alternatively, total capacity or total reserves) in a market.^[1] Market concentration is the portion of a given market's market share that is held by a small number of businesses. To ascertain whether an industry^[2] is competitive or not, it is employed in antitrust law^[3] and economic regulation. When market concentration is high, it indicates that a few firms dominate the market and oligopoly^[4] or monopolistic competition is likely to exist. In most cases, high market concentration produces undesirable consequences such as reduced competition and higher prices.^[5]

The market concentration ratio measures the concentration of the top firms in the market, this can be through various metrics such as sales, employment numbers, active users or other relevant indicators.^[1] In theory and in practice, market concentration is closely associated with market competitiveness, and therefore is important to various antitrust agencies when considering proposed mergers and other regulatory issues.^[6] Market concentration is important in determining firm market power in setting prices and quantities.

Market concentration is affected through various forces, including barriers to entry and existing competition. Market concentration ratios also allows users to more accurately determine the type of market structure they are observing, from a perfect competitive, to a monopolistic, monopoly or oligopolistic market structure.^[7]

Market concentration is related to industrial concentration, which concerns the distribution of production within an industry, as opposed to a market. In industrial organization, market concentration may be used as a measure of competition, theorized to be positively related to the rate of profit in the industry, for example in the work of Joe S. Bain.^[8]

An alternative economic interpretation is that market concentration is a criterion that can be used to rank order various distributions of firms' shares of the total production (alternatively, total capacity or total reserves) in a market.