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Explicit collusion generally is illegal and not an option in low-rivalry industries competitive moves must be constrained informally.
#The threat of new entrants in an industry is high when code#
This discipline may result from the industry's history of competition, the role of a leading firm, or informal compliance with a generally understood code of conduct. If rivalry among firms in an industry is low, the industry is considered to be disciplined.
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The concentration ratio is not the only available measure the trend is to define industries in terms that convey more information than distribution of market share. These fragmented markets are said to be competitive. A low concentration ratio indicates that the industry is characterized by many rivals, none of which has a significant market share. With only a few firms holding a large market share, the competitive landscape is less competitive (closer to a monopoly). A high concentration ratio indicates that a high concentration of market share is held by the largest firms - the industry is concentrated. The CR indicates the percent of market share held by the four largest firms (CR's for the largest 8, 25, and 50 firms in an industry also are available). The Bureau of Census periodically reports the CR for major Standard Industrial Classifications (SIC's). The Concentration Ratio (CR) is one such measure. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences.Įconomists measure rivalry by indicators of industry concentration. Rather, firms strive for a competitive advantage over their rivals. But competition is not perfect and firms are not unsophisticated passive price takers. In the traditional economic model, competition among rival firms drives profits to zero. Impact of inputs on cost or differentiationĬost relative to total purchases in industry