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Herfindahl Index

The Herfindahl Index, often called the Herfindahl-Hirschman Index (HHI), is named after economists Orris C. Herfindahl and Albert O. Hirschman. It 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. This entry discusses how the HHI is calculated and its adoption and application.

Defining and Calculating the Herfindahl Index

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 four-firm concentration ratio (the percentage of industry sales made by the leading four firms in a given ...

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