10 Facts About Market concentration

In economics, market concentration is a function of the number of firms and their respective shares of the total production in a market.

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 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.

Market concentration is related to industrial concentration, which concerns the distribution of production within an industry, as opposed to a market.

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 in a market.

In contrast, market concentration occurs as a result of the efficiency obtained in the course of being a large firm, which is more profitable in comparison to smaller firms and their lack of efficiency.

Bain's original concern with market concentration was based on an intuitive relationship between high concentration and collusion which led to Bain's finding that firms in concentrated markets should be earning supra-competitive profits.

Understanding the market concentration is important for firms when deciding their marketing strategy.

The above positions of Bain as well as Collins and Preston are not only supportive of collusion but of the efficiency-profitability hypothesis: profits are higher for bigger firms within a greater concentrated market as this concentration signifies greater efficiency through mass production.