{"id":16357,"date":"2025-10-19T07:46:29","date_gmt":"2025-10-19T07:46:29","guid":{"rendered":"https:\/\/www.simtrade.fr\/blog_simtrade\/?p=16357"},"modified":"2025-10-19T08:18:38","modified_gmt":"2025-10-19T08:18:38","slug":"herfindahl-hirschmann-index","status":"publish","type":"post","link":"https:\/\/www.simtrade.fr\/blog_simtrade\/herfindahl-hirschmann-index\/","title":{"rendered":"Herfindahl-Hirschmann Index"},"content":{"rendered":"\n\"Nithisha<\/a>\n\n

In this article, Nithisha CHALLA<\/a> (ESSEC Business School, Grande Ecole<\/i> Program – Master in Management (MiM), 2021-2024) delves into the Herfindahl-Hirschmann Index(HHI).<\/p>\n\n\n

History of the Herfindahl-Hirschmann Index(HHI)<\/h2>\n\n

The Herfindahl\u2013Hirschman Index (HHI) originated in the mid-20th century as a measure of market concentration. Its roots trace back to Albert O. Hirschman, who in 1945 introduced a squaring-based method to assess trade concentration in his book \u201cNational Power and the Structure of Foreign Trade.\u201d A few years later, Orris C. Herfindahl independently applied a similar concept in his 1950 doctoral dissertation on the U.S. steel industry, formalizing the formula that sums the squares of firms\u2019 market shares to capture dominance. Over time, economists combined their contributions, naming it the Herfindahl\u2013Hirschman Index. <\/p>\n\n

During the 1970s and 1980s, the measure gained prominence in industrial organization and competition economics. In 1982, the U.S. Department of Justice and the Federal Trade Commission officially adopted the HHI in their Merger Guidelines to evaluate market concentration and the impact of mergers, establishing it as a global standard. Since then, competition authorities worldwide, including the European Commission and the OECD, have incorporated HHI into their antitrust frameworks, and it remains widely used today to assess competition across various industries, such as banking, telecommunications, and energy. <\/p>\n\n

The Herfindahl-Hirschman Index (HHI) is a widely used measure of market concentration and competition in various industries. The HHI has become a crucial tool for finance professionals, policymakers, and regulatory bodies to assess the level of competition in a market. In this article, we will delve into the basics of the HHI, its calculation, interpretation, and advanced applications, including recent statistics and news.<\/p>\n\n\n

What is the Herfindahl-Hirschman Index (HHI)?<\/h2>\n\n

The HHI is a numerical measure that calculates the market concentration of a particular industry by considering the market share of each firm. The index ranges from 0 to 10,000, where higher values indicate greater market concentration and reduced competition. For example, a market comprising four firms with market shares of 30%, 30%, 20%, and 20% would have an HHI of 2,600 (30\u00b2 + 30\u00b2 + 20\u00b2 + 20\u00b2 = 2,600). <\/p>\n\n\n

Calculation of the HHI <\/h2>\n\n

The HHI is calculated by summing the squares of the market shares of each firm in the industry. The market share is typically expressed as a percentage of the total market size. The formula for calculating the HHI is: <\/p>\n\n\n

Formula for the Herfindahl-Hirschman Index (HHI).
\n\"<\/a>
\nSource: the author.<\/p>\n\n

where MSi<\/sub> is the market share of firm i, and N the number of firms. <\/p>\n\n

The HHI ranges from 0 (perfect competition) to 10,000 (monopoly).<\/p>\n\n\n

Interpretation of the HHI <\/h3>\n\n

According to the HHI, the concentration of sectors can be categorized as low, moderate and high:<\/p>\n\n