Market concentration

Market concentration measures how much of a market’s sales are accounted for by a small number of firms. It can indicate the structure of competition but does not by itself establish market power.

Herfindahl–Hirschman index: A measure of market concentration calculated by summing the squared market shares of firms. Squaring shares gives larger firms more weight, making this a standard concentration measure.
Merger control: The review of mergers and acquisitions by authorities enforcing competition law. Authorities use concentration changes to screen mergers for possible harm to competition.
Perfect competition: A theoretical market structure with many firms, homogeneous products, and free entry and exit. It represents a benchmark with no individual firm large enough to dominate sales.
Lerner index: A measure of a firm's price-cost margin, expressed relative to its price. It measures pricing power directly rather than inferring it from market structure.
Concentration ratio: The combined market share of a specified number of the largest firms. It summarizes how much of the market is held by its largest firms.
Merger Guidelines: Official frameworks that explain how competition authorities assess proposed mergers. Guidelines specify when concentration metrics trigger closer scrutiny.
Monopoly: A market structure in which one seller supplies the relevant market without close substitutes. It is the limiting case of concentration when one firm holds the entire market.
Price-cost margin: The difference between a product's price and its marginal cost, often expressed as a share of price. Concentration may be associated with larger margins when rivalry is limited.
Market definition: The process of identifying the products and geographic area that make up a market. Concentration estimates depend on which products and places count as the market.
Antitrust: Laws and enforcement practices intended to protect competition and prevent harmful restraints of trade. Concentration is one structural indicator used in antitrust analysis.

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