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Concentration Factors: An Analysis Of Nestle

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Few firms Concentration ratio is the combined market shares of 3 to 6 largest number of firms relative to the whole market size. They are used to determine the market structure and the competitiveness of the market. Low concentration ratio ranges from 0 to 50 percent and would indicate that the industry is in the market of perfect competition or at the very least monopolistic competition. A range from 50 to 80 percent is commonly interpreted as a medium concentration ratio and the firm operates in an oligopolistic industry. A concentration ratio that ranges from 80 to 100% percent indicates the industry is between oligopoly and monopoly markets. If the concentration ratio of one company is equal to 100% it is considered extremely concentrated, it is viewed as that the industry is a monopoly. 6-firm concentration ratio for Nestle is 60%. A five-firm concentration ratio of 60 percent means the largest five firms in the industry account for 60 percent of sales. This result indicates that the company is in the oligopolistic market and a substantial degree of market power is shared among the six firms. Market power is defined as the ability of a firm to charge a price higher than its marginal cost without losing all of its customers. Oligopoly is essentially when a market is shared between a few large firms that dominate an industry. A low concentration ratio would illustrate a significant amount of competition is present in that industry, compared a firm with a ratio of

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