Originally developed in industrial economics, the concentration ratio (CR) measures the joint output of a number of firms ranked in descending order of significance as a percentage of total market production. For example, a CR5 (CR10) measures the market share of the five (ten) largest companies in a specific market.  The ratio takes values between zero and one; a value of zero indicates no concentration, while one suggests that the market is monopolized. In tourism, the concept has been fruitfully applied in four different contexts: standard industrial economics, temporal, social, and risk management.  In standard industrial economics, it is used to measure the degree of concentration in various tourism sectors, with emphasis on transportation and accommodation. Having appropriately defined a market (not an empirically easy task), a high CR value for a small number of firms (such as CR4=80%) suggests an oligopolistic market structure and the subsequent presence of market power. This does not necessarily mean, however, that companies under consideration abuse their position. In fact, the CR is not about market conduct, competitiveness, performance or productivity (Blake, Sinclair, and Campos-Soria 2006).  Nor does it consider the impact of participants other than those included in the calculation and provides no information on the size distribution of the active companies in the market. Other indexes (Herfindahl–Hirschman Index and Gini coefficient) may provide a better picture of how the market is structured (Papatheodorou and Arvanitis 2009).  The concentration ratio is also used to measure tourism flows across the year. The higher the value, the more acute the exhibited pattern of seasonality is with all associated negative repercussions for a destination. If months are used as a point of reference, CR12 is by definition one. If flows are spread evenly across the year, then CR1=100/12=8.33%.  This measure may complement other techniques, like the seasonality indicator (Lundtorp 2001).  In a social context, the concentration ratio is a crude measure of tourism’s impact on the host community. This is done by measuring the tourists’ number in relation to the local population of a destination (Smith 2000). A high CR value is consistent with a high economic impact that may result in social irritation, especially if a destination’s carrying capacity is exceeded.  Finally, the concentration ratio may be used to measure the degree of destination dependency on tourism service providers and origin markets. A high CR value means greater dependency, hence increased risks and possibly extreme fluctuations in case of insolvencies or adverse conditions (Papatheodorou 2004).

 

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