Editing Concentration ratio (section)

== Benefits and shortfalls ==
Concentration ratios can readily be calculated from industry data, but they are a simplistic, single parameter statistic. They can be used to quantify market concentration in a given industry in a relevant and succinct manner, but do not capture all available information about the distribution of market shares. In particular, the definition of the concentration ratio does not use the market shares of all the firms in the industry and does not account for the distribution of firm size. Also, it does not provide much detail about competitiveness of an industry.<ref name="besanko" />

The following example exposes the aforementioned shortfalls of the concentration ratio. 

=== Example ===
The table below shows the market shares of the largest firms in two different industries (Industry A and Industry B). Aside from the tabulated market shares for Industry A and Industry B, both industries are the same in terms of the number of firms operating in the industry and their respective market shares. In this example, in both cases, all other firms have a share of less than 10%.
{| class="wikitable"
|+Percentage market shares for two different industries
!Firm
!Industry A
!Industry B
|-
|Firm 1
|20%
|35%
|-
|Firm 2
|20%
|25%
|-
|Firm 3
|20%
|10%
|-
|Firm 4
|20%
|10%
|}


It is evident from these figures that Industry B is more concentrated than Industry A, since the market share is distributed more heavily towards the more dominant firms. However, Industry A and Industry B both have ''CR''<sub>4</sub> ratios of 80%. This shows that the CR ratio does not fully take into account the distribution of market share amongst the most dominant firms.