HHI Calculator
Calculate Herfindahl-Hirschman Index (HHI), market share concentration, and antitrust risk levels instantly online.
Herfindahl-Hirschman Index (HHI) Calculator
The Herfindahl-Hirschman Index (HHI) is a widely accepted measure of market concentration used by economists, financial analysts, and regulatory bodies such as the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC). It helps evaluate competitiveness in an industry and assess potential antitrust concerns arising from mergers and acquisitions.
Mathematical Formula
The HHI is calculated by summing the squares of the individual market shares of all firms in the market:
\[ HHI = \sum_{i=1}^{N} s_i^2 = s_1^2 + s_2^2 + s_3^2 + \dots + s_N^2 \]
Where:
- $s_i$ is the market share of firm $i$ expressed as a percentage (e.g., 30 for 30%).
- $N$ is the total number of firms in the industry.
Market Concentration Thresholds
According to regulatory merger guidelines, market concentration levels based on HHI values are categorized into three bands:
- Unconcentrated Market ($HHI < 1500$): Indicates a highly competitive market with low concentration and minimal regulatory oversight on mergers.
- Moderately Concentrated Market ($1500 \le HHI \le 2500$): Mergers that increase HHI by more than 100 points may raise significant antitrust concerns.
- Highly Concentrated Market ($HHI > 2500$): Indicates oligopoly or near-monopoly conditions. Mergers that increase HHI by over 200 points in highly concentrated markets are presumed to enhance market power.
Normalized HHI and Equivalent Firms
The standard HHI ranges between $10,000 / N$ (when all $N$ firms have equal shares) and $10,000$ (a single monopoly). The normalized index ($HHI^*$) scales the result between 0 and 1:
\[ HHI^* = \frac{HHI - \frac{10000}{N}}{10000 - \frac{10000}{N}} \]
Additionally, the number of equivalent equal-sized firms ($N_{eq}$) reflects how many equal-sized firms would generate the same HHI:
\[ N_{eq} = \frac{10000}{HHI} \]
Frequently Asked Questions
What is a good HHI score?
An HHI score below 1,500 represents an unconcentrated, competitive market where no single firm holds dominant control. Scores between 1,500 and 2,500 indicate moderate concentration, while scores above 2,500 represent high concentration.
Why are market shares squared in HHI?
Squaring market shares gives disproportionately heavier weight to larger firms. This ensures that an industry with one dominant player and several tiny competitors scores much higher than an industry with equally distributed smaller firms.
How do antitrust regulators use HHI in merger reviews?
Regulators calculate pre-merger and post-merger HHI values. If a proposed merger increases HHI by more than 200 points in a highly concentrated market (HHI over 2,500), it is presumed to substantially lessen competition under federal antitrust guidelines.
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