Market concentration

Indian Economy glossary

Also called: Industry concentration · Topic: Market Structures, Market Failure and Competition · NCERT: Beyond NCERT

Meaning

Market concentration is how much of a market's total output is held by a few firms. High concentration usually means less competition and more room for firms to raise prices. It is measured in two main ways:

  • the concentration ratio (CR4), the combined share of the top four firms;
  • the Herfindahl-Hirschman Index (HHI), the sum of the squared shares of all firms.

Competition authorities watch concentration closely when they review mergers.

Example

Approximate wireless telecom shares in India are Jio about 41%, Airtel about 33%, Vi about 18% and BSNL about 8%. That gives an HHI of about 3,160, well above the 1,800 mark that the US DOJ/FTC Merger Guidelines (2023) treat as highly concentrated.

Don't confuse with

  • Market power: concentration is about how market share is spread among firms. Market power is one firm's ability to keep price above marginal cost. A few firms facing a real threat of new entrants may still have little market power.

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