Herfindahl Hirschman Index and Explanation

Herfindahl Hirschman Index is also known as HHI and it means a commonly accepted measure of the market concentration. When it comes to calculations, it is by squaring the market share of every firm that competes in the market and then summing up the resulting numbers. Continue reading to learn more about Herfindahl Hirschman Index and how to get economics homework help.

hhi definition

Short History of Herfindahl Hirschman Index

The United States Justice Department is using the HHI in evaluating the issues of potential mergers. It measures the extent in which market share is being concentrated among many or a few companies. It is about measuring the market concentration of the industry’s 50 biggest firms in determining whether the industry has healthy numbers of nearing monopoly or competitors.

herfindahl hirschman index definition

General Information about Herfindahl Hirschman Index

When it comes to the Herfindahl Hirschman Index HHI calculator, you can calculate it by squaring the share of every competitor in the market and getting the sum of the resulting numbers. For instance, if the market has 4 competitors having a market share of 20%, 30%, 30% and 20%, then the HHI is 2600, wherein it is the sum of 202, 302 + 302 + 202.

herfindahl hirschman index

To know more about the Herfindahl Hirschman Index HHI calculator, you can get more ideas with the brief explanation of HHI. So what is HHI? HHI measures the 50 largest firms’ market concentration in a given industry. In a competitive market, Herfindahl Hirschman index approaches 0. In a monopoly, it approaches 10,000.

Why it matters: Some analysts do some industry analysis in understanding where a certain firm competitive advantage and source of growth comes. The fact is that competition structure is a component of industry analysis. The term HHI is Herfindahl Hirschman index and it is being used by the largest firms in calculating the market share of every firm. It takes into consideration the size distribution of companies in the market.

The companies consider markets, where HHI is between 1,500 up to 2,500 points as moderately concentrated. If it is excess 2,500 points, then it is considered as highly concentrated. Remember all these things so that you can answer your homework better as well as pass your quizzes regarding it.

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