Herfindahl Index
Herfindahl Index, also known as Herfindahl-Hirschman Index (HHI), is a measure of market concentration that is commonly used in antitrust law and economics. It is calculated by summing the squares of the market shares of all firms in a given market. The higher the Herfindahl Index, the more concentrated the market is.
For example, let’s consider a market with four firms that have market shares of 30%, 25%, 20%, and 15%. To calculate the Herfindahl Index, we square each of these market shares and sum them together: (0.3^2) + (0.25^2) + (0.2^2) + (0.15^2) = 0.09 + 0.0625 + 0.04 + 0.0225 = 0.215. Therefore, the Herfindahl Index for this market is 0.215.
The Herfindahl Index ranges from close to zero for a market with many small firms to 10,000 for a monopoly. It is used by antitrust authorities to evaluate the level of competition in a market and to determine whether mergers and acquisitions comply with antitrust laws.
In conclusion, the Herfindahl Index is a useful tool for assessing market concentration and competition. By calculating this index, policymakers and economists can better understand the structure of markets and make informed decisions about antitrust regulations.
For more information about the Herfindahl Index, you can visit Wikipedia.