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.

2. How Does the Calculator Work?

The calculator uses the HHI formula:

Where:

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

Explanation: The index ranges from close to 0 (perfect competition) to 10,000 (monopoly). Higher values indicate more concentrated markets.

3. Importance of HHI Calculation

Details: The HHI is used by regulators to evaluate market competitiveness. It helps identify potential anti-competitive effects of mergers and acquisitions.

4. Using the Calculator

Tips: Enter the number of firms and each firm's market share as percentages. The sum of all shares should be 100% for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What HHI values indicate concentrated markets?
A: Markets are generally considered: unconcentrated (HHI < 1,500), moderately concentrated (1,500-2,500), and highly concentrated (HHI > 2,500).

Q2: How is HHI used in antitrust regulation?
A: Regulators use HHI changes to evaluate mergers. Typically, mergers increasing HHI by more than 200 points in concentrated markets raise antitrust concerns.

Q3: What are the limitations of HHI?
A: HHI doesn't account for potential competition, market dynamics, or regional differences. It's a static measure of current market structure.

Q4: How does HHI differ from concentration ratios?
A: Unlike concentration ratios (e.g., CR4), HHI accounts for the distribution of market shares among all firms, not just the largest ones.

Q5: Should HHI be calculated with revenue or units?
A: Typically calculated using revenue market shares, but can be calculated with unit shares depending on the analysis context.