HHI Calculator - Market Concentration

Herfindahl-Hirschman Index Formula:

\[ HHI = \sum_{i=1}^{N} (s_i ^ 2) \]

Herfindahl-Hirschman Index (HHI):

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1. What is the Herfindahl-Hirschman Index?

The Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. It ranges from close to 0 to 10,000.

2. How Does the Calculator Work?

The calculator uses the HHI formula:

\[ HHI = \sum_{i=1}^{N} (s_i ^ 2) \]

Where:

\( s_i \) — Market share of firm i (percentage)
\( N \) — Number of firms in the market

Interpretation:

HHI below 1,500: Unconcentrated market
HHI between 1,500 and 2,500: Moderately concentrated market
HHI above 2,500: Highly concentrated market

3. Importance of HHI Calculation

Details: The HHI is used by regulatory authorities to evaluate market concentration and potential anti-competitive effects of mergers. It provides a more complete picture of market concentration than simple concentration ratios.

4. Using the Calculator

Tips: Enter the number of firms in the market, then input each firm's market share as a percentage. The sum of all market shares should equal 100% for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a "high" HHI?
A: The U.S. Department of Justice considers markets with HHI above 2,500 to be highly concentrated.

Q2: How does HHI differ from concentration ratios?
A: While concentration ratios look only at the largest firms, HHI accounts for the distribution of market share among all firms in the industry.

Q3: What are typical HHI values in different industries?
A: Highly competitive industries might have HHI below 1,000, while monopolies have HHI of 10,000. Oligopolies typically range between 1,800-3,500.

Q4: How is HHI used in merger analysis?
A: Regulators examine both the post-merger HHI and the change in HHI. A merger that increases HHI by more than 200 points in concentrated markets may raise antitrust concerns.

Q5: Are there limitations to HHI?
A: HHI doesn't account for potential competition, global markets, or market dynamics. It's best used with other competitive analysis tools.