The HHI Calculator is a vital tool for economists, regulators, and business strategists to measure market concentration. Whether you are analyzing industry competitiveness or preparing for an antitrust review, this calculator provides instant insights using the Herfindahl-Hirschman Index methodology.
HHI Calculator
HHI Calculator Formula
Variables:
- sₙ: The market share of firm n in the industry, expressed as a whole number (e.g., use 25 for 25%, not 0.25).
- HHI: The resulting index value, ranging from close to 0 (perfect competition) to 10,000 (absolute monopoly).
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What is HHI Calculator?
The Herfindahl-Hirschman Index (HHI) is a widely accepted measure of market concentration used by antitrust regulators to determine the competitiveness of a specific industry. Unlike simple concentration ratios, the HHI accounts for the relative size distribution of firms by squaring each market share.
A high HHI indicates that a small number of firms dominate the market, potentially leading to reduced competition and higher prices for consumers. Conversely, a low HHI suggests a fragmented market with many small players and high competitive pressure.
How to Calculate HHI Calculator (Example)
- Identify the Industry: Determine the total market size and the individual shares of all significant competitors.
- List Market Shares: Suppose an industry has 4 firms with shares of 40%, 30%, 20%, and 10%.
- Square the Shares: Calculate 40², 30², 20², and 10². This gives 1600, 900, 400, and 100.
- Sum the Values: Add them together: 1600 + 900 + 400 + 100 = 3,000.
- Interpret Results: An HHI of 3,000 indicates a “Highly Concentrated” market according to DOJ guidelines.
Frequently Asked Questions (FAQ)
What is a high HHI score? Generally, any HHI above 2,500 is considered highly concentrated. Markets between 1,500 and 2,500 are moderately concentrated.
Can HHI exceed 10,000? No. A pure monopoly with a 100% market share results in 100² = 10,000, which is the maximum possible score.
Why are market shares squared in HHI? Squaring market shares gives disproportionately more weight to firms with larger market shares, reflecting their greater market power.
Is HHI used for merger approvals? Yes, antitrust authorities often use HHI to predict if a proposed merger will significantly increase market concentration and harm competition.