Herfindal Hirschman Index

Herfindal Hirschman Index

• It is a measure of size of firms in relation to industry.

• It is the indication of amount of competition among the firms

• It is used in competition laws and anti-trust laws

• It is the sum of squares of market shares of 50 largest firms within the industry, where market shares are expressed as percentage

• It ranges from 0-10,000 moving from huge number of very small firms to single monopolistic producer

• Increase in Herfindahl Hirschman Index generally indicates decrease in competition and increase of market power, where decrease indicates the opposite.

• The formula is:

HHI=? Si2

Where Si= Market share of firm i in the market

N=Number of firms

• The Herfindahl Index ranges from 1/N to one, where N is the number of firms in the market

• A small index indicates a competitive industry with no dominant players

• If all firms have equal share the reciprocal of the index shows the number of firms in the industry

• When the firms have unequal share the reciprocal of the index indicates the equivalent number of firms in the industry

• Critical concentration level:

Post merger HHI Anti-Trust Challenge

Less than 1000 No challenge- Industry is unconcentrated

Between 100 & 1800 If HHI>100, investigate

More than 1800 If HHI>50, challenge

Herfindal Hirschman Index

• It is a measure of size of firms in relation to industry.

• It is the indication of amount of competition among the firms

• It is used in competition laws and anti-trust laws

• It is the sum of squares of market shares of 50 largest firms within the industry, where market shares are expressed as percentage

• It ranges from 0-10,000 moving from huge number of very small firms to single monopolistic producer

• Increase in Herfindahl Hirschman Index generally indicates decrease in competition and increase of market power, where decrease indicates the opposite.

• The formula is:

HHI=? Si2

Where Si= Market share of firm i in the market

N=Number of firms

• The Herfindahl Index ranges from 1/N to one, where N is the number of firms in the market

• A small index indicates a competitive industry with no dominant players

• If all firms have equal share the reciprocal of the index shows the number of firms in the industry

• When the firms have unequal share the reciprocal of the index indicates the equivalent number of firms in the industry

• Critical