Herfindal Hirschman Index
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