Market concentration

In economics, market concentration is a function of the number of and their respective shares of the total production (alternatively, total capacity or total reserves) in a market. Alternative terms are Industry concentration and Seller concentration.

Market concentration is related to industrial concentration, which concerns the distribution of production within an industry, as opposed to a market. In industrial organization, market concentration may be used as a measure of competition, theorized to be positively related to the rate of profit in the industry, for example in the work of Joe S. Bain.

Commonly used market concentration measures are the Herfindahl index (HHI or simply H) and the concentration ratio (CR). The Hannah-Kay (1971) index has the general form

Note, ${\displaystyle \prod s_{i}^{s_{i}}=\exp \left(\sum s_{i}\log(s_{i})\right)}$, which is the exponential index.

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