100

where i refers to an individual firm.

Theoretically, concentration ratios can range between CRn = 0 for an industry with a massive number of small competitors, to CRn = 100 for an industry represented by a single monopolist. In the manufacturing sector where concentration tends to be highest, four-firm concentration ratios tend to fall in a broad range between CR4 = 20 and CR4 = 60; eight-firm concentration ratios often lie in a range between CR8 = 30 and CR8 = 70. When concentration ratios are low, industries tend to include many firms, and competition tends to be vigorous. Industries in which the four leading firms are responsible for less than 20 percent of total industry sales (i.e., CR4 < 20) are highly competitive and approximate the perfect competition model. On the other hand, when concentration ratios are high, leading firms dominate following firms in terms of size, and leading firms may have more potential for pricing flexibility and economic profits. Industries in which the four leading firms control more than 80 percent of total industry sales (i.e., CR4 > 80) are often described as highly concentrated. Industries with a CR4 < 20 or CR4 > 80, however, are quite rare. Three-quarters of all manufacturing activity takes place in industries with concentration ratios falling in the range 20 < CR4 < 80. In terms of relative importance, market structures that can be described as monopolistically competitive are much more common than perfect competition or monopoly.

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