How do you calculate an n-firm concentration ratio from market share data?

• →A concentration ratio measures the combined market share held by a specified number of the largest firms in an industry, and is used as an indicator of the degree of market power and competitive intensity within that market.
• →To calculate a five-firm concentration ratio (CR5), the market shares of the five largest firms are identified from the data and summed together.
• →For example, if the five largest supermarkets hold market shares of 27%, 15%, 12%, 8%, and 6% respectively, the CR5 is calculated as 27 + 15 + 12 + 8 + 6 = 68%.
• →This shows that 68% of total market output or revenue is controlled by just five firms.
• →As a result, the remaining 32% is distributed among all other firms in the industry. Therefore, a CR5 of 68% suggests a relatively high degree of concentration, indicating that the market has oligopolistic characteristics, with a small number of dominant firms possessing considerable market power and the ability to influence price above the competitive level.
• →It is generally agreed that if the 5-firm concentration ratio is above 60% the market is an oligopoly.

• →Concentration ratio formula: The CR_n is the sum of the market shares of the n largest firms. The value always falls between 0% (perfect competition with infinitely many equal firms) and 100% (pure monopoly). Getting the arithmetic right — and stopping after exactly n firms — is essential.
• →Interpreting the result: A higher concentration ratio indicates a less competitive, more concentrated market. A CR5 approaching 100% points toward monopoly or tight oligopoly; a CR5 below around 40% is more consistent with a competitive market structure.
• →What concentration ratios do and do not show: A concentration ratio captures size distribution among the top firms but says nothing about the distribution of shares among those firms (two industries could share the same CR5 yet have very different internal structures), and it does not directly measure profitability, barriers to entry, or the degree of price-setting power.
• →Linking concentration to market power: High concentration ratios are associated with greater monopoly power — firms in concentrated markets face fewer rivals and are more able to set prices above marginal cost, earning abnormal profit in the long run.
• →Data precision: When market share figures are given in the question, use them exactly as stated. Check that the shares provided are percentages of the same total market and that you have correctly identified the n largest before summing.

• →This question tests understanding of how market concentration is quantified as an indicator of competitive conditions and monopoly power.
• →The ability to calculate and interpret concentration ratios falls under AQA spec point 4.1.5.6 — Monopoly and monopoly power and Edexcel spec point 3.4.4.b, both of which require students to analyse the degree of market power held by firms and the structural features that give rise to it.
• →The calculation itself is straightforward, but examiners are also looking for a student's ability to connect the numerical result to a judgement about market structure.

Examined 3 times across AQA and Edexcel since 2017.

The June 2022 Edexcel paper carried the highest tariff recorded for this calculation, suggesting that later appearances have required more developed interpretation alongside the arithmetic.

• →Market Structures — concentration ratios are a key tool for categorising real-world industries into the theoretical market structures (perfect competition, oligopoly, monopoly) covered in this topic.