Enter the market shares of the top four firms in an industry into the calculator to determine the concentration ratio.

Concentration Ratio Formula

The following formula is used to calculate a concentration ratio of an industry.

4CR = MS1 + MS2 + MS3 + MS4

  • Where 4CR is the concentration ratio of the top four firms in an industry
  • MS is the market share % of each of the top four firms

What is a concentration ratio?

In finance, a concentration ratio is a measure of the total market share that is owned by the top four firms in the sector or industry.

It is used to understand and analyze the total competition in an industry. It’s not the only metric that should be used but it is one of them.

For example, if the top 4 firms hold 90% of the industry in terms of sales, then there is very little competition in the industry. If the top 4 firms hold 10%, there is a lot of competition.

Concentration ratios can be calculated with any number of first, but using the top 4 is the most common.

How to calculate 4 firm concentration ratio?

The following example outlines how to calculate the concentration ratio of the top 4 firms in an industry.

First, determine the market shares of each of the top 4 firms by revenue. This is done by taking the revenue of each company, dividing it by the total market revenue, and multiplying by 100.

In this example, the market shares are as follows:

MS1 = 10%

MS2 = 12%

MS3 = 40%

MS4 = 20%

Finally, sum all of the market shares together to get the 4 firm concentration ratio.

4CR = MS1 + MS2 + MS3 + MS4

4CR = 10 + 12 + 40 + 20

4CR = 82%

This industry has very little competition.