What Is the Herfindahl-Hirschman Index?

The Herfindahl-Hirschman Index ^[ H ^] (HHI) , or Herfindahl Index for short , is a comprehensive index that measures the concentration of industries. It refers to the sum of the squares of the total revenue or the percentage of total assets of the competitors in each market in an industry. It is used to measure the change in market share, that is, the dispersion of the size of manufacturers in the market.

Herfindahl-Hirschman Index

The Herfindahl index can distinguish the market structure based on the company's market share. The Herfindahl Index is calculated as follows:

1. Obtain market share of competitors, but neglect small competitors.

2. Square the market share.

3, these

Herfindahl Index is an industry

The theoretical basis of the Herfindahl-Hirschman index actually originates from Bain's structure-conduct-performance theory. Bain's this

There are 4 companies in the market, each of which has a market share of 0.4, 0.25, 0.17, and 0.18, so the HHI of this market is

HHI = 0.4 * 0.4 + 0.25 * 0.25 + 0.17 * 0.17 + 0.18 * 0.18 = 0.2839

The larger the HHI value, the higher the market concentration.

When the market is in complete monopoly, HHI = 1;

When there are many enterprises in the market and the scale is the same, HHI = 1 / n, n tends to infinity, and HHI tends to 0.