What is MARKET CONCENTRATION?

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What does MARKET CONCENTRATION mean? MARKET CONCENTRATION meaning - MARKET CONCENTRATION definition - MARKET CONCENTRATION explanation. What is the meaning of MARKET CONCENTRATION? What is the definition of MARKET CONCENTRATION? What does MARKET CONCENTRATION stand for? What is MARKET CONCENTRATION meaning? What is MARKET CONCENTRATION definition?

In economics, market concentration is a function of the number of firms 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.

As an economic tool market concentration is useful because it reflects the degree of competition in the market. Tirole (1988, p. 247) notes that:

Bain's (1956) original concern with market concentration was based on an intuitive relationship between high concentration and collusion.
There are game theoretic models of market interaction (e.g. among oligopolists) that predict that an increase in market concentration will result in higher prices and lower consumer welfare even when collusion in the sense of cartelization (i.e. explicit collusion) is absent. Examples are Cournot oligopoly, and Bertrand oligopoly for differentiated products.

Empirical studies that are designed to test the relationship between market concentration and prices are collectively known as price-concentration studies; see Weiss (1989).

Typically, any study that claims to test the relationship between price and the level of market concentration is also (jointly, that is, simultaneously) testing whether the market definition (according to which market concentration is being calculated) is relevant; that is, whether the boundaries of each market is not being determined either too narrowly or too broadly so as to make the defined "market" meaningless from the point of the competitive interactions of the firms that it includes (or is made of).