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market structure


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The number of firms in a market, and the distribution of market shares between them. Two common measures used in describing market structure are the N-firm concentration ratio and the Herfindahl index. The five-firm concentration ratio, for example, shows the total market shares of the largest five firms as a proportion of the whole market. The Herfindahl index works by adding the squares of the proportional shares of all firms. If there are N firms, the largest possible Herfindahl index approaches a maximum of 1 as the biggest firm has nearly all the sales and the rest minute amounts, and a minimum of 1/N if all firms have equal market shares.

Subjects: Economics.


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