Rhoades, of the boards division of research and statistics, prepared this technical note. If, for example, there were only one firm in an industry, that firm would have 100% market share, and the herfindahlhirschman index hhi. In fact, an increase in the value of the index is usually interpreted as an indicator of actions which may lessen competition or even create a monopoly. Herfindahlhirschman index hhi definition investopedia. Some notes on applying the herfindahlhirschman index.
The essential hirschman brings together some of the finest essays in the social sciences, written by one of the twentieth centurys most influential and provocative thinkers. F or example 1 that would lead to a market where iliad and all the incum bents have a mark et share of 20%, with a resulting hhi0. A widget example of the herfindahlhirschman index federal. Here youll find current best sellers in books, new releases in books, deals in books, kindle ebooks, audible audiobooks, and so much more. Herfindahlhirschman index hhi learn how to calculate. Herfindahlhirschman index hhi calculator andrew chin. Consider an american industry comprised of eight firms, with market shares of 35%, 20%, 6%, 4%, 3%. The hhi is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. Herfindahlhirschman index example consider an american industry comprised of eight firms, with market shares of 35%, 20%, 6%, 4%, 3%, 10%, %, and 9%, respectively.
Herfindahlhirschman index the term hhi means the herfindahl hirschman index, a commonly accepted measure of market concentration. Learn vocabulary, terms, and more with flashcards, games, and other study tools. The inverse herfindahlhirschman index as an effective. The herfindahlhirschman index, or hhi, is calculated by squaring the market share of each company in an industry, and then adding the. The herfindahlhirschman index hhi accounts for both factors. As judge richard posner observed in the second edition of his book antitrust law. Pdf dynamics of the hirschmanherfindahl index under new. The hhi is basically a measure of market concentration, but when inverted, it is an effective number of whatever grouping you might be interested in, such as parties. Essentially, this statistic can be interpreted as, individuals are distributed across groups in such. A herfindahlhirschman index score of about 2,500 suggests that the market has an oligopoly it is controlled by very few companies. Thus, the 4firm concentration ratio in this example would be 80% and the. Hirschman, who may be bestremembered today for his 1970 book exit. The cr4 index and the interval estimation of the herfindahl.
The books homepage helps you explore earths biggest bookstore without ever leaving the comfort of your couch. Hirschman was a master essayist, one who possessed the rare ability to blend the precision of economics with the elegance of literary imagination. The herfindahlhirschman index, better known as the herfindahl index, is a statistical measure of concentration. The hhi of a market is calculated by summing the squares of the percentage market shares held by the respective firms. Pdf some notes on applying the herfindahlhirschman index. The major benefit of the herfindahl index in relationship to such measures as.
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