Sectors of the economy do not fit neatly into the limited number of boxes we have provided above. The best we can say in most cases is that they resemble more closely one type of market than another. Consider the example of Canada’s brewing sector: it has two large brewers in Molson-Coors and Labatt, a couple of intermediate sized firms such as Sleeman, and an uncountable number of small boutique brew pubs. While such a large number of brewers satisfy one requirement for perfect competition, it would not be true to say that the biggest brewers wield no market power; and this is the most critical element in defining market structure.
By the same token, we could not define this market as a duopoly: even though there are just two major participants, there are countless others who, together, are important.
One way of defining what a particular structure most closely resembles is to examine the percentage of sales in the market attributable to a small number of firms. For example: what share is attributable to the largest three or four firms. The larger is such a share the more concentrated is market power. Such a statistic is called a concentration ratio. The N-firm concentration ratio is the sales share of the largest N firms in that sector of the economy.
The N-firm concentration ratio is the sales share
of the largest N firms in that sector of the economy.
| Sector | % of shipments |
| Sugar | 98 |
| Breakfast cereal | 96 |
| Canning | 60 |
| Meat processing | 23 |
Source: “Four Firms Concentration Ratios (CR4s) for selected food processing sectors,” adapted from Statistics Canada publication Measuring industry concentration in Canada’s food processing sectors, Agriculture and Rural Working Paper series no. 70, Catalogue 21-601, http://www.statcan.gc.ca/pub/21-601-m/21-601-m2004070-eng.pdf.
Table 11.1 contains information on the 4-firm concentration ratio for several sectors of the Canadian economy. It indicates that, at one extreme, sectors such as breakfast cereals and sugars have a high degree of concentration, whereas meat processing has much less. A high degree of concentration suggests market power, and possibly economies of scale.
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