Lesson 4 of 12 · All lessons in this module
- Why analyse an industry, and the five steps
- Defining an industry and grouping companies
- Industry size and the character of its growth
- Top-down and bottom-up: sizing an industry, shares and HHI sensitivity
- Integrated case: concentration, competitive intensity and market-share trends
- Industry profitability: margins, ROIC and value creation
- Industry structure: Porter's Five ForcesVideo lesson
- Economic moats and lasting barriers to entry
- Supplier and customer power, vertical integration and rating the forces
- External influences: PESTLE analysis
- The innovation matrix and other PESTLE themes
- Integrated case: from an industry survey to a forecast
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 4 of 12 · 12 min
Top-down and bottom-up: sizing an industry, shares and HHI sensitivity
Industry size can be built top-down from aggregate statistics or bottom-up from participants' relevant revenue; the choice changes every market share and concentration figure, so analysts cross-check both.
In short
- Top-down: total industry revenue from a government statistical agency or a third-party provider. Works for fragmented industries, but the data may not be granular enough.
- Bottom-up: add up participants' revenue for the specific goods or services (segment revenue, not total company revenue). Works when large listed firms with clear segments dominate.
- Bottom-up struggles with many private firms (no data) and multi-industry firms (segment disclosures differ, so estimates are needed).
- Market share = relevant segment revenue ÷ industry size, measured on the same definition as the denominator; total company revenue overstates it.
- The gap between a top-down total and a bottom-up total shows how much of the industry sits with small, often private, local players: a sign of segmentation.
- HHI is sensitive to the size estimate. Some regulators call an HHI above 1,800 highly concentrated and scrutinise deals that raise it by more than 100.
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