How to Calculate a Concentration Ratio
A concentration ratio is the sum of the market shares of the largest N firms in an industry, most often the largest four.
The Concentration Ratio formula
Calculator
Enter industry sales and the sales of the four largest firms to get each market share and the CR4.
Sales of every firm in the market added together.
Set any firm the market does not have to 0.
The four largest firms take 75% of industry sales, leaving 25% to everyone else.
- Combined sales of the top four
- $375
- Largest firm's share
- 30%
- Share held by all other firms
- 25%
- Concentration reading
- Highly concentrated (CR4 at or above 60%)
The top four sell $375 million out of an industry total of $500 million.
A concentration ratio adds shares without squaring them, so it treats one dominant firm the same as four equal ones.
Everything the top four do not hold.
A rough guide only. The ratio ignores barriers to entry and geography, so a low CR4 can still hide regional monopolies.
How to calculate Concentration Ratio, step by step
- 1Find total industry sales. Add the sales of every firm in the market to get the industry total.
- 2Calculate each market share. Market share = (firm sales ÷ industry sales) × 100, stated as a percent.
- 3Rank the firms. Sort the shares from largest to smallest and take however many the question asks for, usually four.
- 4Add the top shares. The sum is the CRN; a figure near 100 signals a highly concentrated market, while a low figure points to many small competitors.
Worked example: Concentration Ratio
Total industry sales are $500 million, and the four largest firms sell $150M, $100M, $75M, and $50M. Their shares are 30%, 20%, 15%, and 10%, so CR4 = 30 + 20 + 15 + 10 = 75%.
Concentration Ratio questions
What is the difference between a concentration ratio and the Herfindahl-Hirschman Index?
A concentration ratio simply adds the top firms' shares, while the HHI squares every firm's share before summing, so the HHI reacts far more strongly to one dominant firm.
What does a CR4 of 100% mean?
It means four firms account for every sale in the market, the signature of a tight oligopoly, or of a near-monopoly if one of the four holds most of it.
Does a low concentration ratio guarantee competition?
No, because the measure ignores barriers to entry and geography, so a market with a low CR4 can still contain regional monopolies.
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