Final answer:
A four-firm concentration ratio over 90 suggests a highly concentrated market with limited competition, where the four largest firms have significant control over market share, potentially leading to monopoly-like behavior. However, this ratio alone may not fully represent the level of competition, which is why the Herfindahl-Hirschman Index is also used.
Step-by-step explanation:
A four-firm concentration ratio of over 90 indicates a market that is highly concentrated, meaning that the four largest firms in the market collectively control more than 90% of the market share. This situation suggests that competition is limited, as a few firms hold significant market power, which can result in a market that behaves more like a monopoly or oligopoly rather than a competitive marketplace. Hence, there would be concerns regarding the level of competition and potential abuse of market power.
For example, two industries with the same four-firm concentration ratio can have very different competitive landscapes. If in one industry, the four firms evenly split the market, competition might be healthier than in another industry where one firm dominates the majority of the market even with the same ratio.
Therefore, while a high four-firm concentration ratio can be a cause for concern regarding competition, it doesn't always tell the full story. This is why other measurements like the Herfindahl-Hirschman Index (HHI) are used in conjunction with the four-firm ratio to provide a clearer picture of market competition. The HHI takes into account the market shares of all firms in the market and tends to give a better reflection of market concentration and competitive pressure.