Industry Concentration
Industry Concentration
Chris Lavery
Research Project:
Industry Concentration
Industry concentration has two forms of measurement. The first is based upon a 100% concentration of all the firms in a certain industry. This is known as the concentration ratio and represents the value of the top firms of an industry stated as a percent of the total industry scales. The other type of concentration measurement is known as the Herfindahl index and is calculated by squaring the individual producers percentage of the market and adding them together. For instance, if there were 5 firms in an industry and they each had 20% of the total output, the Herfindahl index would be; (20 squared) + (20 squared) + (20 squared) + (20 squared) + (20 squared)= 2000. An example of these concentration ratios, taken from the 1997 US government economic census, are as follows:
4-Firm Concentration Ratio Herfindahl Index
Meat products: 35 393
Fruit and vegetable canning: 24 259
Breakfast cereal: 82 2,445
Womens and and misses dresses: 13 76
Book printing:
32 364
Stationery: 56 1,128
Soap and detergent:
66 1,619
Mens footwear:
50 857
Womens footwear:
50 795
Bolts, nuts, rivets, washers:
9 40
Electronic computer:
45 728
Radio, TV, wireless broadcasting:
49 972
Burial caskets:
74 2,965
Generally, if the 4-firm concentration ratio is high, the Herfindahl index will be high as well.
2002 4-Firm Concentration Ratios for 3 Major Industries: Utilities, Accommodation and Food Services, and Finance/Insurance
Utilities
4-Firm Concentration Ratio
Electric power generation, transmission, & distribution
Natural gas distribution
Water, sewage, & other systems
Hydroelectric power generation
Fossil fuel electric power generation
Nuclear electric power generation
Sewage treatment facilities
Water supply & irrigation systems
Steam & air-conditioning supply
Source:
Accommodation and Food Services
4-Firm Concentration Ratio
Accommodation
Traveler accommodation
Hotels (except casino hotels) & motels
Casino hotels
RV (recreational