Concentration Ratio (CR4): Formula, What Counts as High, and 346 Census Industries
Michael Whitman
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Trading since 2017, full-time since 2020
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YouTube creator, 137K subscribers
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Published 2026-09-14
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Updated
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Reviewed
Concentration ratio is the combined market share held by the largest firms in an industry, most commonly the top four. It is used by competition authorities and analysts to judge how competitive a market is, and it ignores the distribution of share among those firms.
A concentration ratio is the combined market share of the largest firms in an industry, most often the top four, written CR4. In the Census Bureau’s 2022 Economic Census the median CR4 across 346 US manufacturing industries was 38.6%, and 70 of them were at 60% or more.
Below: the formula, the readings people use, a worked example on a real industry, and what the Census numbers show when the ratio is set beside the index regulators actually use.
How it works
Rank the firms by share and add the top few. The formula is CRn = s1 + s2 + … + sn, where each s is one firm’s percentage of industry sales. CR4 and CR8 are the versions the Census Bureau publishes; UK textbooks often use CR3 or CR5.
Share is measured on money, not units. The Census Bureau uses value of shipments for manufacturers and revenue for service industries, so an industry can look different when counted in tons, customers or capacity.
The result runs from near zero to 100%. A CR4 of 75% means the four largest firms took three quarters of the industry’s sales between them, and a CR1 of 100% is a monopoly.
The usual readings are conventions. Under about 40% is typically called competitive, 40% to 60% a loose oligopoly, and 60% or more concentrated; some textbooks put the high line at 70%. None of these lines has legal force in the US.
What counts as a high concentration ratio
There is no official cutoff for CR4. US merger guidelines have set their thresholds on the Herfindahl-Hirschman index (HHI) since 1982. The 2023 Merger Guidelines from the Justice Department and the FTC call a market highly concentrated above an HHI of 1,800, and presume that a merger is likely to lessen competition substantially if it leaves the market above 1,800 and adds more than 100 points. A merger of firms with shares a and b adds 2 x a x b, so a 20% firm buying a 5% firm adds 200.
So “high” depends on who is asking. A textbook says 60%. A competition lawyer asks for the HHI. An investor screening for pricing power usually wants both, plus a look at who the top firms actually are.
The two scales do not line up neatly. Of the 30 manufacturing industries with a CR4 of 60% or more and a published HHI in 2022, 19 were at or below 1,800: concentrated on the textbook line and not highly concentrated on the regulators’ line.
Concentration ratio vs the Herfindahl-Hirschman index
The HHI squares each share before adding. Four firms at 25% each score 4 x 625 = 2,500; one firm at 97% and three at 1% score 9,412. Both have a CR4 of 100%.
Squaring makes the largest firm count most. That is the whole difference: CR4 treats a point of share the same whichever firm holds it, while the HHI weights it by the size of the firm holding it.
Real industries show the gap. In 2022 cyclic crude, intermediate and gum and wood chemical manufacturing had a CR4 of 57.1% and an HHI of 1,294.9, while nonferrous metal smelting and refining (excluding aluminum) had 56.3% and 881.9. Within one point of each other on CR4, they sat 413 points apart on the index.
A CR4 does set a floor under the HHI. The top four alone contribute at least CR4 squared divided by four, the case where they split their share equally. At a CR4 of 50% the floor is 625; at 80% it is 1,600. Solve for 1,800 and the answer is a CR4 of 84.85%: above that, an industry is over the regulators’ line however the share is divided.
A worked example
Breakfast cereal manufacturing, 2022 Economic Census. The Census Bureau counted 77 firms with $10.98 billion of shipments. Its concentration table reports:
| Largest firms | Share of shipments |
|---|---|
| 4 | 86.6% |
| 8 | 93.3% |
| 20 | 99.3% |
| 50 | 99.9% |
Step 1, the ratio itself. CR4 is 86.6%, so the other 73 firms shared 13.4%, and firms five to eight held 93.3% - 86.6% = 6.7 points between them.
Step 2, the average of the top four. 86.6% / 4 = 21.65% each, if they were the same size.
Step 3, the floor on the index. Four equal firms at 21.65% give 4 x 21.65 x 21.65 = 1,874.89. Because 86.6% is above 84.85%, cereal clears 1,800 whatever the split.
Step 4, compare with the published index. The Census HHI for the 50 largest firms is 2,539.1, which is 1.35 times the floor. The top four are therefore not equal in size.
Step 5, what that says about the leader. Every term in the index is a share times itself, and no share is larger than the biggest firm’s, so the HHI is at most the largest share times the total share of the 50 firms. That gives a largest share of at least 2,539.1 / 99.9 = 25.42%, or roughly $2.79 billion of the $10.98 billion in shipments, from published totals alone.
What the ratio alone could not say. CR4 told us the industry was concentrated. Only the second number showed that the top four are unequal and set a minimum for the leader’s share.
The original data
We recomputed every manufacturing row in the Census Bureau’s 2022 concentration table: 346 six-digit industries with a published four-firm share, 271 of them with a published HHI for their 50 largest firms. Each dot below is one industry, and the dashed curve is the floor from the section above.
No industry sat below the floor. All 271 published indexes were at or above CR4 squared over four, which is a check that the arithmetic in the worked example holds on every row. The median industry’s index was 1.50 times its floor.
The two measures rank industries almost identically. The rank correlation between CR4 and the HHI across the 271 was 0.994, so a reader sorting industries by either one gets nearly the same list.
Where they part is the cutoff. Only 11 of the 271 were above 1,800: guided missiles and space vehicles (CR4 96.7%, HHI 3,377.1), breakfast cereal, phosphatic fertilizer, military armored vehicles, beet sugar, motor homes, pulp mills, wet corn milling, gypsum products, lime and malt. Seventy of the 346 had a CR4 of 60% or more.
At the low end the two agree completely. All 169 industries with a published index and a CR4 under 40% had an index under 1,000.
The full distribution is in the Census table. By four-firm share, 42 industries were under 20%, 143 from 20% to under 40%, 91 from 40% to under 60%, 55 from 60% to under 80% and 15 at 80% or more. Most moved little between 2017 and 2022: of 326 industries with the same code and title in both censuses, 169 rose and 153 fell, with a median change of 0.2 points. Every row is in the concentration table.
Defining the market is the real argument
Broad definitions produce low ratios. A supermarket chain’s share of all US food retail is modest; its share of grocery sales within a short drive of one town can be most of the market. The Census tables measure national industries, so they cannot see that second number.
Product boundaries move the answer too. Soft drinks had a CR4 of 48.2% in 2022 and bottled water 78.0%, yet a shopper choosing a drink may treat both as one shelf.
Merger cases turn on this step. Once the market is agreed, the arithmetic is quick, which is why both sides argue hardest about where the boundary sits.
Why an investor would look at it
As a screen, not a verdict. A high ratio marks an industry where price competition may be weaker and margins steadier, which is why it shows up in fundamental analysis of industry structure and in the case for durable businesses that Warren Buffett made famous.
High concentration draws regulators. Merger blocks, price investigations and break-up cases all start from a concentrated market, and that is a business risk to the margins the concentration produced.
It says nothing about entry. An industry with four large firms and low barriers can lose share quickly; a fragmented one protected by licenses or scale may be harder to break into than its ratio suggests.
Demand matters as much as supply. Where elasticity of demand is low, customers have few places to go, and a concentrated industry can raise prices without losing much volume.
Do not mix it up with concentration risk. This ratio describes an industry. Concentration risk describes a portfolio with too much riding on one holding, and a sector ETF in a concentrated industry can carry both at once.
Questions people ask
How do you calculate a four-firm concentration ratio?
Find each of the four largest firms’ sales as a percentage of total industry sales and add the four percentages. If the top four sell $30, $20, $15 and $10 million in a $125 million industry, CR4 is 24% + 16% + 12% + 8% = 60%.
What is a good concentration ratio?
None is good or bad in itself. Under 40% is usually read as competitive and 60% or more as concentrated, and for merger review US agencies use the HHI line of 1,800 instead.
What is the difference between CR4 and HHI?
CR4 adds the top four shares; the HHI squares every firm’s share and adds them, so it reflects how share is split. Two industries with CR4 near 57% scored 1,294.9 and 881.9 on the 2022 Census index.
Is a concentration ratio of 100% a monopoly?
Only for CR1. A CR4 of 100% means four firms hold the whole market, which could be one giant and three small firms or four equals.
When it fails
The classic failure is a low national ratio hiding local monopolies. A CR4 of 25% across the country can describe regional firms that never compete with one another, each the only supplier within reach of its own customers. The statistic averages over a market no customer actually shops in.
A second failure is reading the cutoff as a fact. An industry at 61% is not meaningfully different from one at 59%, and the HHI may put both well under 1,800.
A third is ignoring imports and substitutes. Census shares cover shipments by US plants, so foreign competition and close substitutes from other industries are outside the ratio entirely.
A fourth is treating an old census as today. The Economic Census runs every five years and the 2022 concentration file is dated April 2025, so the newest official figure already describes a market three years back. Industries can move fast in that gap: malt manufacturing went from a CR4 of 68.3% in 2017 to 84.2% in 2022.
Related
Concentration risk covers the portfolio version of the same word. Business risk covers what a company’s market position means for steady earnings, and elasticity explains why concentrated sellers facing captive buyers can raise prices.
The number is easy and the definition is everything. Almost every argument about whether a market is concentrated is really an argument about where its boundaries sit, and whoever gets to draw the boundary has usually won before the arithmetic starts.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.