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 a market and then summing the resulting numbers.

2. How Does the Calculator Work?

The calculator uses the HHI formula:

Where:

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

Explanation: The HHI ranges from close to 0 (perfect competition) to 10,000 (monopoly). The index gives more weight to larger firms, making it sensitive to the distribution of firm sizes.

3. Importance of HHI Calculation

Details: The HHI is used by antitrust regulators to evaluate mergers and acquisitions. It helps determine whether a market is competitive or concentrated.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What do different HHI values mean?
A: HHI below 1,500 indicates competitive market; 1,500-2,500 moderately concentrated; above 2,500 highly concentrated.

Q2: How is HHI used in antitrust regulation?
A: Regulators examine changes in HHI from mergers. Increases of 200+ points in concentrated markets often trigger scrutiny.

Q3: What are the limitations of HHI?
A: HHI doesn't account for potential competition, global markets, or barriers to entry. It's a static measure of current market shares.

Q4: Should I use revenue or units for market share?
A: Typically revenue is used, but the appropriate measure depends on the specific market being analyzed.

Q5: How does HHI compare to other concentration measures?
A: HHI is more comprehensive than simple concentration ratios (e.g., CR4) as it accounts for all firms and their relative sizes.