Kno-how! on market concentration

The example below is taken from the June 2008 figures for market share in the UK food retail sector.

• The 3 firm concentration ratio is measured at 63.9%

• The 5 firm concentration ratio is measured at 83.4%

• This market structure suggests an oligopoly – but each of the businesses has ‘market power’ in the sense that each has control over the products it sells and the prices it charges.

• The data is for the national economy – local and regional concentration ratios might be different – e.g. the local monopoly power enjoyed by one or more businesses. The UK competition authorities are aware of this when they investigate markets.


MARKET SHARE
(%)
CUMULATIVE MARKET SHARE
(%)
Tesco
31.2
31.2
Asda (Wal-Mart)
16.8
48.0
Sainsbury’s
15.9
63.9
Morrisons (Safeways)
11.4
75.3
Co-operative (Somerfield)
8.1
83.4
Waitrose
3.9
87.3
Aldi
2.9
90.2
Lidl
2.3
92.5
Iceland
1.7
94.2

1. A pure monopolist in an industry is a single seller. It is quite rare for a firm to have a pure monopoly – except when the industry is state-owned and has a legally protected monopoly. The Royal Mail used to have a statutory monopoly on delivering household mail. But this is now changing fast as the industry has been opened up to fresh competition.

2. A working monopoly: A working monopoly is any firm with greater than 25% of the industries' total sales. In practice, there are many markets where businesses enjoy some degree of monopoly power even if they do not have a twenty-five per cent market share.

3. A dominant firm is a firm that has at least forty per cent of their given market