Best Answer - Chosen by Voters
Simply put, the higher the CR the more monopolistic an industry is (or in this case oligopolistic). The 4 firm concentration ratio is usually the standard measure of this. In the example w/ 30% CR you can assume there are likely low barriers to entry and the industry is very competitive. If demand increases in this industry and pushes prices up in the short-term you will see more companies enter in the long term. Since the price will come back down it implies a competitive industry.
The second example is a much less competitive industry. Since there are barriers to entry or competitiveness (i.e. economies of scale/scope) you will likely have a long term increase in price since more companies won't come in to push prices down via competition. It is unlikely a small firm can survive in the second industry with a price leadership model.
Is there a question here?
The best answer, chosen by voters, explains that the concentration ratio (CR) is a measure of how monopolistic or oligopolistic an industry is. A higher CR indicates a more concentrated industry, meaning that a small number of firms dominate the market. In contrast, a lower CR suggests a more competitive industry with many firms.
To determine the CR, the 4-firm concentration ratio is commonly used. It calculates the combined market share of the four largest firms in the industry. For example, if the CR is 30%, it indicates that the four largest firms hold a 30% market share.
In an industry with a low CR, such as 30%, there are likely low barriers to entry and a high level of competition. If demand increases, leading to a short-term price increase, more companies will enter the industry in the long term. This increased competition will push prices back down, indicating a competitive industry.
On the other hand, in an industry with a high CR, there are barriers to entry or factors that limit competition, like economies of scale or scope. This creates a less competitive market, and prices are likely to increase in the long term because fewer firms can enter and push prices down through competition. In such an industry, it is unlikely that smaller firms can survive using a price leadership model.
Overall, the CR helps understand the level of competition within an industry and its potential impact on prices.