Using Market Concentration (Market Shares)

Topics

market shares, analysis, industry structure, pricing, competition

Teaching Notes for this Activity

In this activity, students look at the output from a market share (with market concentration information) spreadsheet and attempt to interpret the results and consider the how it may affect marketing decisions.

Please note that the HHI index is assessed using the following scale:

  • HHI = Less than 0.150 = a competitive (low concentrated) market
  • HHI = 0.150 to 0.250 = a medium/moderate concentrated market
  • HHI = More than 0.250 = a highly concentrated market

And sometimes this index is presented as being multiplied by 10,000. This does not change the calculation or the interpretation, but some analysts prefer to deal with whole numbers rather than decimals.


Review the activity below or download the PDF student worksheet

Student Worksheet: Using Market Concentration (Market Shares)


Student Discussion Activity

Review the following table, which shows the unit market share and the market concentration for a market with 15 brands in the marketplace – and then answer the questions at the end.

market concentration

Student Discussion Questions

  1. Given that there are 15 brands in this market, do you think that there is a heavy, medium or light degree of market concentration in this market?
  2. Which metric – for a 15 brand market – is more suitable for measuring market concentration (top 3, 4 or 5 brands)?
  3. Would your choice of the most appropriate metric for market concentration (from Q2) make a significant difference to your response to Q1 above?
  4. How is the Herfindahl index measured? What advantage does this index have over the other market concentration metrics?
  5. If a market is heavily concentrated – then what are the marketing implications for:
    • retailer/distribution access,
    • role of brand equity, pricing,
    • product range/mix?
  6. How can a smaller player/brand successfully compete in a highly concentrated market?

Additional Information

This table provides a comparison of two markets, both with the same number of competitors. Market A has a dominant market leader. In each case, the other competitors hold 5% market share each and the market leader holds the balance of market share. For example, for five competitors, the market leader has 80%, and the other for firms hold 5% each, totaling 20%.

In Market B, there is the same number of competitors shown (comparing one to 10 competitors), except in this market all players have an equal market share. For example, for five competitors, each player has 20% share of the market, totaling 100% between them.

As can be seen, Market A is always a highly concentrated market, because it always contains a substantial and dominant competitor versus smaller players who only have a maximum of 5% of the market each.

Whereas for Market B, once we reach four competitors who are all equal, the measure drops to moderately concentrated, and when we reach seven equal competitors, it is considered a relatively low level of concentration.


Related Activities

Using Market Share Information

What’s Our Market Share?

Further Information

What is the Herfindahl-Hirschman Index (HHI)?