Question

If there are six firms in an industry and the market shares of the firms are 32 percent, 25 percent, 19 percent, 9 percent, 8 percent and 7 percent, the Herfindahl index is

Answer 1

Answer: 2,204

Explanation:

The Herfindahl-Hirschman Index (HHI) shows just how competitive an industry is with a higher HHH meaning that it is not very competitive and a lower one meaning that it is quite competitive.

It is calculated by adding up the squares of the percentage market shares of the firms in the industry of interest:

= 32² + 25² + 19² + 9² + 8² + 7²

= 1,024 + 625 + 361 + 81 + 64 + 49

= 2,204