Concentration ratios that use national market share numbers are limited in usefulness because they do not account for the fact that competition in many industries is concentrated in local markets.
One of the drawbacks of applying concentration ratios to market monopoly and oligopoly power is that the size of the market can lead to inaccurate results. Markets can be local, national, or even global, and can vary the range of results.
The concentration ratio calculated the market share percentage for the industry and the same is held by the larger firms inside the industry. A low concentration rate indicates that the industry is highly competitive compared to a rate close to 100%, which would be a monopoly.
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