The four-firm concentration ratio in the breakfast cereal industry is 80 percent. How does the five ...

The concentration ratio only measures the market share of the largest domestic firms in an industry; it does not describe the degree of competition among the existing firms (one of the five forces), which may come in the form of advertising, service, price, etc. The concentration ratio does not assess the threat firms in the breakfast cereal industry face from potential entrants (another of the five forces) into their market. Existing firms may keep their prices low in order to discourage new firms from entering. The concentration ratio cannot be used to evaluate any of the other three competitive forces—competition from substitute goods (for example, frozen breakfast foods), and the bargaining powers of buyers and suppliers.

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