What is Three-Firm Concentration Ratio?
The Three-Firm Concentration Ratio (CR3) is a measure of market concentration. It is used to understand the percentage of total sales (or market share) that are held by the three largest firms in a given market. A low concentration ratio suggests that a market is competitive, while a high concentration ratio implies that the market is dominated by a few large firms.
How to Calculate Three-Firm Concentration Ratio?
The Three-Firm Concentration Ratio is calculated as follows:
- Calculate the market share of the three largest firms in a given market.
- Add the three market shares together.
- Divide the result by the total market share.
For example, let’s say that Firm A has a market share of 30%, Firm B has a market share of 25%, and Firm C has a market share of 15%. The Three-Firm Concentration Ratio would be calculated as follows: (30% + 25% + 15%) / 100% = 70% The Three-Firm Concentration Ratio in this example is 70%, which suggests that the market is dominated by the three largest firms.
Conclusion
The Three-Firm Concentration Ratio is a useful measure of market concentration that can be used to assess the level of competition in a given market. A high concentration ratio suggests that the market is dominated by a few large firms, while a low concentration ratio implies a competitive market. Further reading: