Herfindahl Hirschman Index HHI Calculator

HHI Formula:

\[ HHI = \sum (Market\ Share_i)^2 \times 10,000 \]

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:

\[ HHI = \sum_{i=1}^{n} (Market\ Share_i)^2 \times 10,000 \]

Where:

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

Explanation: Each market share is squared before summing, which gives proportionately more weight to the larger market shares. The result is then multiplied by 10,000 to convert from decimal to a more readable integer format.

3. Importance of HHI Calculation

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

Highly concentrated: HHI > 2,500
Moderately concentrated: HHI between 1,500-2,500
Unconcentrated: HHI < 1,500

4. Using the Calculator

Tips: Enter market shares as percentages (0-100%). You can add multiple market share fields to include all significant competitors in the market. The sum of all market shares doesn't need to equal 100% as the calculator will work with whatever values you provide.

5. Frequently Asked Questions (FAQ)

Q1: Why is HHI used instead of simple concentration ratios?
A: HHI accounts for both the number of firms and their size distribution, providing a more comprehensive measure of market concentration than simple concentration ratios.

Q2: What is considered a competitive market according to HHI?
A: Markets with HHI below 1,500 are generally considered unconcentrated and competitive. Those between 1,500-2,500 are moderately concentrated, and above 2,500 are highly concentrated.

Q3: How should I interpret changes in HHI after a merger?
A: Regulatory agencies typically examine both the post-merger HHI level and the change in HHI. An increase of more than 200 points in a highly concentrated market often triggers antitrust concerns.

Q4: Are there limitations to the HHI?
A: Yes, HHI doesn't account for potential market entrants, global competition, or the dynamics of market competition. It's a static measure based on current market shares.

Q5: Should I include all firms in the market calculation?
A: For accuracy, include all firms with significant market presence. However, very small firms (with less than 1% market share) typically have minimal impact on the HHI calculation.