An Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. This type of market structure has been around for centuries and is still seen in many industries today. The concentration ratio measures the market share of the largest firms in an oligopoly, giving us an indication as to how much control these companies have over their respective markets.The concentration ratio helps economists analyze how competitive or monopolistic certain markets are by comparing the size and power different companies possess within them.For example, if there were five major airlines operating in a given region but one airline had more than half the total passenger traffic then we could conclude that this company was likely dominating its competition due to its larger shareholdings and greater access to resources such as aircrafts and airports slots etc., indicating that it may be acting like an oligopoly instead of competing fairly on price or services offered.In conclusion, understanding what factors contribute towards creating an effective oligopolistic environment is essential for businesses looking to maximize profits while minimizing competition from other players in their industry. The concentration ratio provides useful insight into which companies are most influential within any given sector by measuring each firm’s relative size compared with other competitors present therein; allowing business owners & investors alike make informed decisions regarding where they should allocate resources accordingly so as not be disadvantaged against rival entities operating under similar conditions.
