Herfindahl-Hirschman Index

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration used to assess the competitiveness of a market. It is calculated by summing the squares of the Market Shares of all firms within the market. The HHI ranges from 0 to 10,000, where lower values indicate a more competitive market and higher values indicate less competition.

Formula: HHI = Σ (si^2), where si is the Market Share of firm i (expressed as a percentage).

Examples:

• If a market consists of three firms with Market Shares of 50%, 30%, and 20%, the HHI would be calculated as follows: HHI = (50^2) + (30^2) + (20^2) = 2500 + 900 + 400 = 3800.
• In a highly competitive market with 10 firms each holding 10% Market Share, the HHI would be: HHI = 10*(10^2) = 1000.

Cases:

• A market with an HHI below 1,500 is considered competitive.
• An HHI between 1,500 and 2,500 indicates moderate concentration.
• An HHI above 2,500 signifies high concentration, often leading to antiTrust scrutiny.