Herfindahl-Hirschman Index

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Equation / Last modified by KurtHeckman on 2018/07/16 18:11
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The Herfindahl-Hirschman Index (HHI) calculator computes the HHI market concentration index for a list of companies based on their market share.

Index Classification Value
High over 2500
Medium1500 - 2500
Lowless than 1500 

INSTRUCTIONS:  Enter the following:

  • (MS)  Enter the Market Share for all of the companies separated by commas (e.g.  36,27,15,13,9)

Herfindahl-Hirschman Index (HHI):  The calculator returns the index.

General Information

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration in an industry. The market share of each competing firm is squared, and then summed together to give you the concentration index. Its value can range from 0 to 10000, denoting the level of market concentration.

Example

Suppose that furniture sales industry in Maryland is composed of a total of five firms and the market shares of each firm in millions of dollars in product sold are as follows,

  • Firm 1 - 36M
  • Firm 2 - 27M
  • Firm 3 - 15M
  • Firm 4 - 13M
  • Firm 5 -  9M

Then the following would be inputted into the calculator above: 

  • 36,27,15,13,9 

HHI = 2500

As long as the units are consistent  (e.g. millions of dollars), the share numbers can be the short value as in this example.  However, if Firm 5 was only $950K, the inputs would be: 

  • 36,27,15,13,0.95

Explanation: In entering the above market shares of the five competing firms of the furniture sales industry, we get that the Herfindahl-Hirschman Index is equal to, HHI= 2500. A HHI of 2500 is indicative of high market concentration in the furniture sales industry. Smaller indices are representative of more perfectly competitive markets, where as higher values are indicate a more monopolistic market.

References

Department of Justice. "Herfindahl-Hirschman Index." U.S. Department of Justice. U.S. Department of Justice, 29 July 2015. Web. 29 June 2016.

Investopedia. "Herfindahl-Hirschman Index - HHI." Investopedia. Investopedia LLC, 20 Nov. 2003. Web. 29 June 2016.