Alternatively a eight-firm concentration ratio of 0.001 (that is, the eight 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 eight 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.

High, Medium, and Low

Concentration ratios range for a low of 0 percent to a high of 100 percent. At the low end, a 0 percent concentration ratio indicates an EXTREMELY competitive market. At the high end, a 100 percent concentration ratio means an extremely concentrated oligopoly or even monopoly if the ONE-firm concentration ratio is 100 percent.

Between these two extremes, concentration ratios can fall into low, medium, and high concentration.

• 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 view as highly 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 eight firms in the industry, then dividing by the total. Alternatively, the market shares of the top eight firms can be calculated individually, then summed.

The eight-firm concentration ratio is the sum of total sales or the top eight firms (OmniCola, Juice-Up, Super Soda, King Caffeine, Mega Cola, Hometown Brew, Frosty Grape, Cola-Riffic) divided by the industry total. These eight firms account for $1,570 million worth of soft drink sales, which is 78.5 percent of the overall market. Or the market shares of the top eight firms (23 percent, 17.5 percent, 11.25 percent, 9.5 percent, 6.15 percent, 4.35 percent, 3.6 percent, and 3.15 percent) can be summed, which is also 78.5 percent.

This measure indicates that the Shady Valley soft drink industry falls within the medium concentration range.

Concentration and Competition

For example, an eight-firm concentration for the Shady Valley soft drink industry of 78.5 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 eight firms has an equal $196.25 million in sales, the concentration ratio is 78.5 percent. Alternatively, the concentration ratio is 78.5 percent if OmniCola has $1,500 million in sales and the next three firms account for only $70 million in sales.