Herfindahlhirschman index example consider an american industry comprised of eight firms, with market shares of 35%, 20%, 6%, 4%, 3%, 10%, %, and 9%, respectively. F or example 1 that would lead to a market where iliad and all the incum bents have a mark et share of 20%, with a resulting hhi0. Herfindahlhirschman index hhi learn how to calculate. The herfindahlhirschman index hhi accounts for both factors. A herfindahlhirschman index score of about 2,500 suggests that the market has an oligopoly it is controlled by very few companies. A widget example of the herfindahlhirschman index federal.
Some notes on applying the herfindahlhirschman index. Herfindahlhirschman index hhi calculator andrew chin. Rhoades, of the boards division of research and statistics, prepared this technical note. The essential hirschman brings together some of the finest essays in the social sciences, written by one of the twentieth centurys most influential and provocative thinkers.
Herfindahlhirschman index the term hhi means the herfindahl hirschman index, a commonly accepted measure of market concentration. As judge richard posner observed in the second edition of his book antitrust law. It has achieved an unusual degree of visibility for a statistical index because of its use by. Essentially, this statistic can be interpreted as, individuals are distributed across groups in such.
The hhi of a market is calculated by summing the squares of the percentage market shares held by the respective firms. Learn vocabulary, terms, and more with flashcards, games, and other study tools. The herfindahlhirschman index, better known as the herfindahl index, is a statistical measure of concentration. Hirschman, who may be bestremembered today for his 1970 book exit. For example, imagine two different markets, each with four companies. The hhi is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. Pdf dynamics of the hirschmanherfindahl index under new. Hirschman was a master essayist, one who possessed the rare ability to blend the precision of economics with the elegance of literary imagination. The major benefit of the herfindahl index in relationship to such measures as. In fact, an increase in the value of the index is usually interpreted as an indicator of actions which may lessen competition or even create a monopoly.
The inverse herfindahlhirschman index as an effective. Herfindahlhirschman index hhi learn how to calculate the hhi. Consider an american industry comprised of eight firms, with market shares of 35%, 20%, 6%, 4%, 3%. The government wants to assess the degree of concentration of the industry. Here youll find current best sellers in books, new releases in books, deals in books, kindle ebooks, audible audiobooks, and so much more. The herfindahlhirschman index, or hhi, is calculated by squaring the market share of each company in an industry, and then adding the. Herfindahlhirschman index hhi definition investopedia. Thus, the 4firm concentration ratio in this example would be 80% and the. The cr4 index and the interval estimation of the herfindahl.
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