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. The HHI ranges from 0 to 10,000 and is used by regulatory authorities to evaluate market competition.

2. How Does the Calculator Work?

The calculator uses the HHI formula:

Where:

• \( Market\ Share_i \) — Market share percentage of each firm
• \( \sum \) — Summation of all squared market shares

Explanation: The index gives more weight to larger firms, making it sensitive to the distribution of firm sizes in the market.

3. Importance of HHI Calculation

Details: HHI is crucial for antitrust analysis, merger reviews, and market competition assessment. Regulatory agencies use HHI thresholds to determine market concentration levels and potential anti-competitive effects.

4. Using the Calculator

Tips: Enter market share percentages (one per line) in the text area. All values must be valid percentages. The calculator will automatically compute the HHI score.

5. Frequently Asked Questions (FAQ)

Q1: What do different HHI values indicate?
A: HHI below 1,500 indicates unconcentrated markets; 1,500-2,500 indicates moderate concentration; above 2,500 indicates high concentration.

Q2: How is HHI used in merger analysis?
A: Regulatory agencies examine changes in HHI post-merger. Significant increases may trigger antitrust concerns.

Q3: What are the limitations of HHI?
A: HHI doesn't account for potential market entrants, geographic markets, or product differentiation.

Q4: Should market shares be entered as decimals or percentages?
A: Enter as percentages (e.g., 25 for 25%, not 0.25).

Q5: How many firms should be included in the calculation?
A: Include all significant market participants for accurate results, typically all firms with measurable market share.