Alternatively a four-firm concentration ratio of 0.001 (that is, the four largest firms are responsible for one-thousandth of one percent of industry output) is good indication that the industry is monopolistically competitive and that the four largest firms have very little market control. However, because there is a fine line between oligopoly and monopolistic competition blend into, there is no distinct concentration ratio that can be used to separate one market structure from the other.

Two Common Ratios

• Four-Firm Concentration Ratio: This concentration ratio measures the total market share held by the four largest firms in the industry.


• Eight-Firm Concentration Ratio: This concentration ratio measures the total market share held by the eight largest firms in the industry.

High, Medium, and Low

Concentration ratios range for a low of 0 percent to a high of 100 percent.

• No Concentration: At the low end, a 0 percent concentration ratio means perfect competition or at the very least monopolistic competition that is EXTREMELY competitive. The number of firms is so large that four largest firms have 0 percent of the market.


• Total Concentration: At the high end, a 100 percent concentration ratio means an extremely concentrated oligopoly. If the calculation is based on a ONE-firm concentration ratio, the a 100 percent value means monopoly.

• Low Concentration: A concentration ratio of 0 to 50 percent is commonly interpreted as an industry with low concentration. Monopolistic competition falls into the bottom of this with oligopoly emerging near the upper end.


• Medium Concentration: A concentration ratio of 50 to 80 percent is considered an industry with medium concentration. These industries are very much oligopoly.


• High Concentration: An industry with a concentration ratio of 80 to 100 percent is viewed as high concentration. Government regulators are usually most concerned with industries falling into this category.

The Shady Valley Soft Drink Industry

Soft Drink Sales

Concentration ratios can be calculated in one of two essentially identical ways. The first is to sum total sales of the top four (or eight) firms in the industry, then divide by the total. Alternatively, the market shares of the top four (or eight) firms can be calculated individually, then summed.

The four-firm concentration ratio is the sum of total sales or the top four firms (OmniCola, Juice-Up, Super Soda, and King Caffeine) divided by the industry total. These four firms account for $1,225 million worth of soft drink sales, which is 61.25 percent of the overall market. Or the market shares of the top four firms (23 percent, 17.5 percent, 11.25 percent, and 9.5 percent) can be summed, which is also 61.25 percent. The top eight firms in the market account for $1,520 million in sales, which is 78.50 percent of the market.

Both measures indicate that the Shady Valley soft drink industry falls within the medium concentration range.

Concentration and Competition

For example, a four-firm concentration for the Shady Valley soft drink industry of 61.25 suggests a medium level of concentration and a modest degree of competition. This ratio, however, can be achieved in a number of ways. If each of the top four firms has an identical $306.250 million in sales, the concentration ratio is 61.25 percent. Alternatively, the concentration ratio is 61.25 percent if OmniCola had $1,200 million in sales and the next three firms accounted for only $25 million in sales.