Herfindahl HI Index Calculator

Herfindahl-Hirschman Index Formula:

\[ HHI = \sum (s_i^2) \times 10000 \]

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 a market and then summing the resulting numbers. The HHI ranges from 0 to 10,000, with higher values indicating greater market concentration.

2. How Does the Calculator Work?

The calculator uses the HHI formula:

\[ HHI = \sum_{i=1}^{n} (s_i^2) \times 10000 \]

Where:

\( s_i \) — Market share of firm i (as a decimal)
\( n \) — Number of firms in the market

Explanation: Each market share is squared, then all squared values are summed, and finally multiplied by 10,000 to convert from decimal to a 0-10,000 scale.

3. Importance of HHI Calculation

Details: The HHI is used by regulatory authorities to evaluate market competition. Markets are typically classified as:

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

4. Using the Calculator

Tips: Enter market shares as percentages (0-100%). Add additional market share fields as needed using the "Add Another Market Share" button. The sum of all market shares should ideally equal 100% for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a competitive market according to HHI?
A: Markets with HHI below 1,500 are generally considered competitive, while those above 2,500 are considered highly concentrated.

Q2: How does the HHI differ from the concentration ratio?
A: Unlike concentration ratios that only consider the largest firms, HHI accounts for the market share of all firms and gives more weight to larger market shares.

Q3: What are the limitations of the HHI?
A: HHI doesn't account for potential market entrants, geographic market boundaries, or product differentiation. It also assumes accurate market share data.

Q4: How is HHI used in antitrust regulation?
A: Regulatory agencies use HHI to evaluate mergers. Significant increases in HHI following a merger may raise antitrust concerns.

Q5: Should market shares sum to exactly 100%?
A: For the most accurate HHI calculation, market shares should sum to 100%, but the formula will work with any sum as it normalizes the shares.