HHI Calculator (Herfindahl-Hirschman Index Calculator)

Herfindahl-Hirschman Index (HHI) Calculator Guide

Table of Contents

• Introduction
• Why It Matters
• Formula
• Examples
• Market Insights Table
• Firm Comparison Table
• Concentration Ranges Table
• FAQs

Introduction

The Herfindahl-Hirschman Index, often shortened as HHI, provides a numeric snapshot of competition within a given industry. Instead of relying only on opinions, this metric gives structure.

Why It Matters

Businesses, regulators, and investors use this value to understand whether a market is healthy or leaning toward dominance by a few large players. It helps in shaping decisions.

Understanding the Basics

The scale ranges from very low values, showing dispersed competition, to high values, suggesting possible monopoly. Each number tells a story of balance or imbalance.

Quick Benefits

• Easy to apply in practice
• Works for both small and large industries
• Offers regulators clear benchmarks
• Provides managers insights for planning

Formula

The calculation follows a simple process:

HHI = (Market Share₁)² + (Market Share₂)² + … + (Market Shareₙ)²

For example, if four firms hold shares of 40%, 30%, 20%, and 10%, the calculation would be 1600 + 900 + 400 + 100 = 3000.

Examples

Let’s walk through a few real-world styled examples:

• Example 1: A tech market has three firms with 50%, 30%, and 20%. HHI = 2500 + 900 + 400 = 3800.
• Example 2: Four retail shops split evenly at 25% each. HHI = 625 + 625 + 625 + 625 = 2500.
• Example 3: A food chain market with five firms holding 20% each. HHI = 2000.
• Example 4: Two firms with 70% and 30%. HHI = 4900 + 900 = 5800.
• Example 5: Ten firms with 10% each. HHI = 1000.

Each example demonstrates how the index grows when fewer players hold larger shares. This pattern is crucial in spotting dominance.

Market Insights Table

The table above shows how different sectors demonstrate varying concentration levels. A high value warns regulators about possible dominance.

Firm Comparison Table

This breakdown highlights how each company contributes to the total number. Larger shares carry disproportionate influence.

Concentration Ranges Table

As this table shows, moving upward in range reflects a stronger grip of fewer players over the entire sector. The index can warn policymakers early.

FAQs