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The extent to which a market is taken up by producers within a given industry.
It is a function of the number of firms and their respective shares of the total production (alternatively, total capacity or total reserves) in a market.
As an economic tool it is useful because it reflects the degree of competition in the market.
Bain's (1956) original concern with it was based on an intuitive relationship between high concentration and collusion.There are game theoretic models of market interaction (e.g. among oligopolists) that predict that an increase in concentration will result in higher prices and lower consumer welfare even when collusion in the sense of cartelization (i.e. explicit collusion) is absent. Examples are Cournot oligopoly, and Bertrand oligopoly for differentiated products.
Agreed to Mr. VJ
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