1. What is the Four Firm Concentration Ratio?

The Four Firm Concentration Ratio (CR4) is a measure of market concentration that calculates the combined market share of the four largest firms in an industry. It provides insight into the level of competition and market structure.

2. How Does the Calculator Work?

The calculator uses the CR4 formula:

Where:

• \( Sales1 \) — Sales revenue of the largest firm
• \( Sales2 \) — Sales revenue of the second largest firm
• \( Sales3 \) — Sales revenue of the third largest firm
• \( Sales4 \) — Sales revenue of the fourth largest firm
• \( Total Sales \) — Total sales revenue of all firms in the market

Explanation: The ratio expresses the percentage of total market sales accounted for by the four largest firms in the industry.

3. Importance of CR4 Calculation

Details: CR4 is used by economists and policymakers to assess market competition levels. Higher ratios indicate more concentrated markets with less competition, while lower ratios suggest more competitive markets.

4. Using the Calculator

Tips: Enter sales figures for the four largest firms and the total market sales in the same currency units. All values must be positive numbers, and total sales must be greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What does a high CR4 indicate?
A: A high CR4 (typically above 40-50%) indicates an oligopolistic market structure where a few large firms dominate the industry.

Q2: How does CR4 differ from HHI?
A: While CR4 measures the combined share of the top four firms, the Herfindahl-Hirschman Index (HHI) squares each firm's market share, giving more weight to larger firms.

Q3: What are the limitations of CR4?
A: CR4 doesn't account for market size distribution beyond the top four firms and doesn't consider potential competition or market dynamics.

Q4: What industries typically have high CR4 ratios?
A: Industries like telecommunications, airlines, and automotive manufacturing often have high concentration ratios due to significant barriers to entry.

Q5: How is CR4 used in antitrust regulation?
A: Regulatory agencies use CR4 as one indicator when evaluating mergers and acquisitions for potential anti-competitive effects.