Structure of the Market and Its Influence on the Level of Competition.
The market concentration refers to the extent to which a market is grouped together or consolidated into a certain number of agents, whether these producers or sellers.
The degree of market concentration provides valuable information regarding the structure of the market and its influence on the level of competition.
In general, a high degree of market concentration is often linked to a low level of competition. This relationship comes from the theory of perfect competition and monopoly.
What does the market concentration depend on?
In general, the market concentration depends on two factors, the number of undertakings and their relative size. In this way, a market will be more concentrated the smaller the number of companies and the greater the difference between the size of these.
In order to obtain a quantitative measure of the market concentration, an indicator is usually constructed. This is then compared to the perfect competitive situation where there are supposed to be numerous small competing companies.
Most commonly used concentration rates Among the most commonly used concentration indexes are:
Reciprocal number of companies: If n is the number of companies, the indicator is calculated as 1/n. This index can be useful when market companies are very similar in size. However, when companies are dissimilar, the indicator transmits very little information.