Question

Ten firms compete in a market to sell product X. The total sales of all firms selling the product are $1,000,000. Ranking the firms’ sales from highest to lowest, we find the top four firms’ sales to be $185,000, $165,000, $140,000, and $125,000, respectively. Calculate the four-firm concentration ratio in the market for product X.

Answer 1

Formula:

Four - firm concentration ratio = [(Sum of total production of Top 4 firms)/Total Market production]*100

Here, Total Market production = 1,000,000

Sum of total production of Top 4 firms = 185,000 + 165,000 +140,000 +125,000 = 615,000

Thus, Four - firm concentration ratio = (615,000/1,000,000)*100 = 61.5%

Hence, the four-firm concentration ratio in the market for product X = 61.5%

Note :

You can also calculate the four firm concentration ratio by just adding % market share of top 4 firms.

i.e. (185,000/1,000,000)*100 + (165,000/1,000,000)*100 + (140,000/1,000,000)*100 + (125,000/1,000,000)*100

= 61.5% which is same as above