High concentration Ratios are closely linked to oligopoly market structures. Explain
what this means and consider its importance in relation to the pricing policy of an
oligopoly rm. [12]
A concentration ratio measures the percentage of the market share held by the most
dominant rms in the market. It is calculated by adding the market shares of say, the top
four rms. The sum is the concentration ratio. The ration directly relates to the number of
rms in an industry. For example, a ratio of 50% means that there are two rms, a
duopoly. A ratio of 25% means there are four rms. This is an example of an oligopoly.
Oligopoly are industries where there are a few dominant rms, high barriers to entry and
exit, interdependence between rms. This interdependence is a key characteristics and
in uences pricing policies. The higher the level of interdependence, the more in exible a
pricing policy will be. This is due to the kinked demand curve:
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fifi fi fi fi fi fl
what this means and consider its importance in relation to the pricing policy of an
oligopoly rm. [12]
A concentration ratio measures the percentage of the market share held by the most
dominant rms in the market. It is calculated by adding the market shares of say, the top
four rms. The sum is the concentration ratio. The ration directly relates to the number of
rms in an industry. For example, a ratio of 50% means that there are two rms, a
duopoly. A ratio of 25% means there are four rms. This is an example of an oligopoly.
Oligopoly are industries where there are a few dominant rms, high barriers to entry and
exit, interdependence between rms. This interdependence is a key characteristics and
in uences pricing policies. The higher the level of interdependence, the more in exible a
pricing policy will be. This is due to the kinked demand curve:
fi fl fi
fifi fi fi fi fi fl
