To calculate the four-firm concentration ratio, add together the market shares of the four largest firms in an industry: CR4 = S1 + S2 + S3 + S4. The result is a percentage between 0 and 100 that describes how much of the market those four firms control. The arithmetic takes seconds. The work is in defining the market correctly and pulling clean revenue numbers, because a CR4 built on the wrong inputs will point you in the wrong direction.
The Formula
CR4 equals the sum of the market share percentages of the four largest firms. If Firm A holds 25%, Firm B holds 18%, Firm C holds 12%, and Firm D holds 9%, the CR4 is 64%.
You can get to each firm’s share in one of two ways. If a credible source already publishes market share percentages, just add the top four. If you’re starting from raw revenue, divide each firm’s annual sales by total industry sales and multiply by 100.
A CR4 near zero would mean no firm holds meaningful share, which doesn’t happen in practice. A CR4 of 100 means four or fewer firms account for every dollar spent in that market. Most industries land in between.
Define the Market Before You Count
The most common mistake is skipping this step. Before touching revenue data, answer two questions: what product are you measuring, and where?
The Product Market
The product market is the group of goods or services customers treat as reasonable substitutes. Federal antitrust regulators evaluate this using a hypothetical monopolist test: if a single seller raised prices by about five percent and enough customers would switch away that the increase wasn’t profitable, the market definition is too narrow and needs to be broadened.1United States Department of Justice Antitrust Division. Market Definition
Drawing the product boundaries too tightly or too loosely will distort your CR4. Lump tablets in with laptops and the market looks more competitive than it really is for either category. Define the market as only 13-inch aluminum laptops and the concentration looks artificially high.
The Geographic Market
Geographic boundaries depend on how far customers will go for a substitute. A CR4 for U.S. wireless carriers looks nothing like a CR4 for wireless service in rural Montana. Transportation costs, regulations, trade barriers, and customer habits all limit scope.1United States Department of Justice Antitrust Division. Market Definition
If you’re calculating a U.S. ratio, you need U.S. revenue, not worldwide sales. A firm that earns $50 billion globally but only $12 billion domestically has a very different domestic share than its headline number suggests.
For consistency with how government data is organized, the North American Industry Classification System (NAICS) offers a standardized framework for industry boundaries. Federal statistical agencies use NAICS codes to classify establishments, so building your market around them keeps your definition aligned with published concentration data.2Census Bureau. North American Industry Classification System – NAICS
Find the Revenue Numbers
Once the market is defined, you need annual revenue for each of the top four firms within that market, plus total revenue for the entire market.
Public Companies
Publicly traded companies file annual reports on Form 10-K with the Securities and Exchange Commission, which include audited financial statements with detailed revenue figures.3Investor.gov. Form 10-K For diversified companies operating across several industries, go to the segment reporting section. Accounting rules require public companies to break out revenue by product line or geography, which lets you isolate the sales that actually belong in your market rather than counting the entire conglomerate.
Private Companies
Private firms don’t publish financial statements, which creates a real data gap. Analysts typically estimate private company revenue with proxies: scaling a comparable public company’s revenue by relative employee headcount, working backward from disclosed funding rounds, or multiplying publicly stated customer counts by estimated pricing. None of these methods match audited financials, and that uncertainty should factor into how much confidence you place in your final ratio.
Total Industry Revenue
The denominator is often the hardest number to pin down. The most authoritative U.S. source is the Economic Census, conducted every five years by the Census Bureau. The 2022 Economic Census covers 19 NAICS sectors and publishes concentration data, including revenue figures, at various industry classification levels.4Census Bureau. Concentration Ratio – Census Bureau Tables The drawback is the five-year lag, which can leave your denominator stale in fast-moving industries. Private market research firms publish more current estimates, but those come with their own methodological assumptions.
Whichever source you choose, make sure the firm-level revenue and the industry total come from the same time period and the same geographic scope. Mixing a firm’s 2024 global revenue with a 2022 U.S. industry total produces a meaningless ratio.
A Worked Example
Say you’re calculating CR4 for a hypothetical widget market with total U.S. sales of $800 million. You’ve identified the four largest widget makers and their domestic revenue:
- Firm A: $200 million
- Firm B: $120 million
- Firm C: $80 million
- Firm D: $60 million
Divide each firm’s revenue by total industry revenue and multiply by 100:
- Firm A: ($200M ÷ $800M) × 100 = 25%
- Firm B: ($120M ÷ $800M) × 100 = 15%
- Firm C: ($80M ÷ $800M) × 100 = 10%
- Firm D: ($60M ÷ $800M) × 100 = 7.5%
Add the four shares: 25 + 15 + 10 + 7.5 = 57.5%. The CR4 is 57.5%, meaning the top four firms control well over half of all sales.
Keep your units consistent. If one firm’s revenue is in thousands and another’s is in millions, the math falls apart before you get to interpretation.
Reading the Result
Economists generally sort CR4 outcomes into three brackets. These aren’t legal thresholds, but they’re useful shorthand for the kind of market you’re looking at.
Low Concentration: 0–40%
A CR4 below 40% points to a fragmented market. No small group of firms dominates, pricing power is limited for any one company, and new entrants face fewer obstacles from established players. Most local service industries and many retail categories sit in this range.
Medium Concentration: 40–60%
Between 40% and 60%, you’re looking at the early signs of oligopoly. A handful of firms have enough combined weight to influence pricing trends even without coordinating directly. Regulators pay closer attention in this range, and the largest firm in the group often functions as a price leader that smaller competitors effectively have to match.
High Concentration: 60–100%
Above 60%, the market is a tight oligopoly. Real competition is limited, and structural barriers to entry — high startup costs, brand loyalty, economies of scale, heavy regulation — tend to be steepest in these markets, which is partly why the concentration persists. Several U.S. industries in food processing, beverages, and telecommunications sit well above this threshold.
What CR4 Doesn’t Tell You
CR4 is a useful first look, but it hides things that matter.
- It ignores how shares are split among the four. A CR4 of 80% where each firm holds 20% describes a very different competitive dynamic from one where a single firm holds 71% and three others split 9%.
- It ignores every firm outside the top four. A market where the fifth-largest firm holds 15% looks identical to one where the fifth-largest holds 0.5%.
- It assumes the market is correctly defined. Every problem in your market definition carries straight through to the final number.
- It’s a snapshot. A CR4 of 55% tells you nothing about whether concentration has been climbing quickly or sitting flat for a decade.
- It measures structure, not conduct. High concentration doesn’t prove firms are behaving anti-competitively; low concentration doesn’t guarantee healthy competition.
When to Reach for HHI Instead
The Herfindahl-Hirschman Index (HHI) is the tool federal regulators lean on for merger analysis. HHI is calculated by squaring the market share of every firm in the market and adding the squares, producing a number between 0 and 10,000, with 10,000 being a pure monopoly.5Department of Justice: Antitrust Division. Herfindahl-Hirschman Index
The squaring is what gives HHI its edge over CR4. Two markets could both have a CR4 of 80%, but one might have four firms each at 20% while the other has one firm at 65% and three at 5%. CR4 treats them as identical; HHI does not, because squaring disproportionately weights larger shares.
So why use CR4 at all? It’s faster, easier to explain, and requires less data. You only need revenue figures for four firms and the market total. HHI technically requires data on every competitor in the market. For a quick competitive assessment or a teaching example, CR4 is enough. For regulatory filings and formal merger analysis, HHI is the expected standard.