Herfindahl Index

The Herfindahl Index, often called the HerfindahlHirschman Index (HHI), is a measure of market concentration, which can be defined as the percentage of total industry sales that are contributed by the largest firms in an industry. The HHI is a measure of the size of firms in a given industry and an indicator of the degree of competition in that industry. It is a more sophisticated method of measuring market concentration than the more common method that uses the fourfirm concentration ratio (the percentage of industry sales made by the leading four firms in a given industry). This measure is of interest to antitrust authorities who are trying to determine the impact of a proposed merger on competition in an industry. The formula for calculating ...