Herfindahl-Hirschman Index - HHI


DEFINITION of 'Herfindahl-Hirschman Index - HHI'

A commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. The HHI number can range from close to zero to 10,000. The HHI is expressed as:

HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where sn is the market share of the ith firm).

The closer a market is to being a monopoly, the higher the market's concentration (and the lower its competition). If, for example, there were only one firm in an industry, that firm would have 100% market share, and the HHI would equal 10,000 (100^2), indicating a monopoly. Or, if there were thousands of firms competing, each would have nearly 0% market share, and the HHI would be close to zero, indicating nearly perfect competition.

The U.S. Department of Justice uses the HHI for evaluating mergers.


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BREAKING DOWN 'Herfindahl-Hirschman Index - HHI'

The U.S. Department of Justice considers a market with a result of less than 1,000 to be a competitive marketplace; a result of 1,000-1,800 to be a moderately concentrated marketplace; and a result of 1,800 or greater to be a highly concentrated marketplace. As a general rule, mergers that increase the HHI by more than 100 points in concentrated markets raise antitrust concerns.

  1. Perfect Competition

    A market structure in which the following five criteria are met: ...
  2. Oligopsony

    Similar to an oligopoly (few sellers), this is a market in which ...
  3. Antitrust

    The antitrust laws apply to virtually all industries and to every ...
  4. Cartel

    An organization created from a formal agreement between a group ...
  5. Oligopoly

    A situation in which a particular market is controlled by a small ...
  6. Merger

    The combining of two or more companies, generally by offering ...
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