Market Concentration

Market concentration measures the degree to which a small number of firms control a large share of production, sales, or assets in a given market. It is typically quantified by indices such as the concentration ratio (CR4, CR8) or the Herfindahl-Hirschman Index (HHI), which sum the squared market shares of all firms in an industry. In traditional antitrust analysis, high concentration is treated as a proxy for market power and a predictor of price elevation. But in platform markets governed by network effects, concentration indices are deeply misleading: a market with two platforms may appear competitive by HHI standards while being entirely locked in by ecosystem dependencies, data moats, and switching costs. The systems-theoretic insight is that concentration is not merely a count of firms but a measure of architectural control — and the relevant architecture may not be visible to traditional market-definition techniques.

Market concentration indices were designed for steel and automobiles. Applied to cloud infrastructure or social media, they measure the wrong dimension of power and create a false sense of competitive health.