Herfindahl Index
Herfindahl Index is a measure of market concentration that is commonly used in economics and business. It is calculated by summing the squares of the market shares of all firms in a market. The higher the Herfindahl Index, the more concentrated the market is.
For example, let’s consider a market with three firms: Firm A with a market share of 40%, Firm B with a market share of 30%, and Firm C with a market share of 30%. The Herfindahl Index for this market would be calculated as follows:
(0.4^2) + (0.3^2) + (0.3^2) = 0.16 + 0.09 + 0.09 = 0.34
So, in this example, the Herfindahl Index for this market would be 0.34, indicating a moderate level of market concentration.
Herfindahl Index is often used to assess competition and antitrust issues in various industries. It provides a quantitative measure of market power and can help regulators determine if mergers and acquisitions are likely to harm competition.
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