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Concentration refers to the extent to which a small number of firms or enterprises account for a large proportion of economic activity such as total sales, assets or employment.

There are at least four distinct concepts embodied within the term concentration:

- Aggregate concentration which measures the relative position of large enterprises in the economy. This measure has interested economists, sociologists and political scientists mainly in the context of theories relating to actual (and potential) economic- political power which big business may be able to exercise because of their economic importance in a country/industrial sector/geographic region.

- Industry or Market concentration (also often referred to as seller concentration) which measures the relative position of large enterprises in the provision of specific goods or services such as automobiles or mortgage loans. The rationale underlying the measurement of industry or market concentration is the industrial organization economic theory which suggests that, other things being equal, high levels of market concentration are more conducive to firms engaging in monopolistic practices which leads to misallocation of resources and poor economic performance. Market concentration in this context is used as one possible indicator of market power.

- Buyer concentration which measures the extent to which a large percentage of a given product is purchased by relatively few buyers. At the extreme, a single purchaser of all the production of a good or service would give rise to a situation of monopsony. Buyer concentration may result in countervailing power that offsets the market power that may otherwise arise from high levels of market or seller concentration.

Source Publication:
Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.


Statistical Theme: Financial statistics

Created on Thursday, January 3, 2002

Last updated on Monday, March 3, 2003