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Definition: Concentrated Industry
A concentrated industry is a market scenario where a few large companies have a very high market share in the business in the industry. Whether an industry is concentrated or not depends largely on how broadly the industry is defined.
Some industries may be more concentrated than others. (oligopolistic or monopolistic markets) This could be because of the unique characteristics of the market segment that they operate in.
In industries where the economies of scale are important, the concentration of players would tend to be higher, leading to a concentrated industry.
Barriers to entry are another important reason for the emergence of concentrated industries. If the barriers to entry are higher in a particular industry, it would be more difficult for new firms to emerge and take on established firms. This leads to higher levels of concentration in such industries. On the other hand, if there are no barriers to entry, it would lead to the emergence of more players, leading to a more competitive industry. Here, we can say that the industry concentration would be lesser.
HHI (Herfindahl Index) and the Concentration ratio are two metrics that are commonly used to measure the market concentration.
For example, in the soda industry, Coca Cola and Pepsico together contribute nearly 80 % of the entire market share. We can see that this is a highly concentrated industry. Another example of a concentrated industry is search engines, which is dominated by Google, followed by Yahoo and Microsoft.