Herfindahl-Hirschman Index (HHI) Calculator
Calculate market concentration using our simple HHI Calculator.
HHI Calculator
Enter the percentage market share for each firm in the industry (from 0 to 100). You can enter up to 10 firms. Leave fields blank if fewer than 10 firms.
Market Concentration: –
Number of Firms Included: 0
Total Market Share Accounted For: %
Market Share Breakdown
| Firm | Market Share (%) | Squared Market Share |
|---|---|---|
| Enter market shares above to see the breakdown. | ||
Table showing individual firm market shares and their squared values contributing to the HHI.
Squared Market Shares Contribution
Bar chart illustrating the contribution of each firm’s squared market share to the total HHI.
What is the Herfindahl-Hirschman Index (HHI)?
The Herfindahl-Hirschman Index (HHI) is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market and then summing the resulting numbers. The HHI number can range from close to zero to 10,000. The U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) use the HHI for evaluating the potential impact of mergers on market competition. Our HHI Calculator provides a quick way to compute this index.
Who should use the HHI Calculator? Economists, regulators, business strategists, and academics use the HHI to assess the level of competition within an industry. A higher HHI generally indicates less competition and greater market power held by a few firms.
Common misconceptions include thinking HHI directly measures monopoly power (it measures concentration, which is related but not identical) or that a specific HHI number is always “bad” without context. The interpretation of the HHI value depends on the industry and the change in HHI a merger might cause. Using an HHI Calculator is the first step in this analysis.
HHI Calculator Formula and Mathematical Explanation
The Herfindahl-Hirschman Index is calculated using the following formula:
HHI = Σ (si)2
Where:
- HHI is the Herfindahl-Hirschman Index.
- si is the market share of the i-th firm in the market, expressed as a percentage (e.g., 30 for 30%).
- Σ denotes the summation across all firms in the market (from i=1 to n, where n is the number of firms).
The calculation involves:
- Identifying all firms in the relevant market.
- Determining the market share of each firm (usually as a percentage).
- Squaring the market share of each firm.
- Summing up these squared market shares.
The resulting HHI value ranges from 0 (perfect competition) to 10,000 (a pure monopoly with 100% market share). The HHI Calculator automates these steps.
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| HHI | Herfindahl-Hirschman Index | Points | 0 – 10,000 |
| si | Market share of firm ‘i’ | Percentage (%) | 0 – 100 |
| n | Number of firms in the market | Count | 1 to many |
Practical Examples (Real-World Use Cases)
Let’s see how the HHI Calculator works with examples:
Example 1: Moderately Concentrated Industry
Suppose an industry has four main firms with the following market shares: Firm A (30%), Firm B (25%), Firm C (20%), Firm D (15%), and smaller firms making up the remaining 10% (let’s assume two firms with 5% each).
- Firm A: 302 = 900
- Firm B: 252 = 625
- Firm C: 202 = 400
- Firm D: 152 = 225
- Firm E: 52 = 25
- Firm F: 52 = 25
HHI = 900 + 625 + 400 + 225 + 25 + 25 = 2200. According to DOJ/FTC guidelines, an HHI between 1500 and 2500 indicates a moderately concentrated market.
Example 2: Highly Concentrated Industry
Consider an industry dominated by two firms: Firm X (60%) and Firm Y (40%).
- Firm X: 602 = 3600
- Firm Y: 402 = 1600
HHI = 3600 + 1600 = 5200. This HHI value is well above 2500, indicating a highly concentrated market where competition concerns would be significant in case of a merger between X and Y.
Our HHI Calculator easily performs these calculations.
How to Use This HHI Calculator
Using our HHI Calculator is straightforward:
- Enter Market Shares: Input the percentage market share for each firm in the respective fields (from Firm 1 to Firm 10). Enter values between 0 and 100. If you have fewer than 10 firms, leave the extra fields blank or enter 0.
- View Results: The HHI is calculated automatically as you enter the values. The “Primary Result” shows the HHI score.
- Interpret Concentration: The “Market Concentration” field tells you if the market is Unconcentrated (HHI < 1500), Moderately Concentrated (HHI 1500-2500), or Highly Concentrated (HHI > 2500) based on U.S. guidelines.
- Check Details: The table and chart show the individual contributions to the HHI from each firm.
- Reset: Click “Reset” to clear all inputs and start over.
- Copy: Click “Copy Results” to copy the HHI, concentration level, and number of firms to your clipboard.
The HHI Calculator helps you quickly assess market concentration before and after potential mergers.
Key Factors That Affect HHI Results
Several factors influence the Herfindahl-Hirschman Index:
- Number of Firms: Generally, the more firms in an industry, the lower the HHI, assuming market shares are somewhat distributed. However, even with many firms, if a few hold very large shares, the HHI can be high.
- Distribution of Market Shares: An industry with firms of very unequal sizes will have a higher HHI than an industry with many firms of similar sizes, even if the number of firms is the same. The HHI Calculator reflects this sensitivity.
- Mergers and Acquisitions: A merger between two firms in the market will always increase the HHI because the combined market share squared is greater than the sum of the individual squared shares ( (a+b)2 > a2 + b2 ). Regulators scrutinize mergers that significantly increase HHI in concentrated markets.
- Market Definition: The HHI is very sensitive to how the relevant market is defined (product and geographic scope). A narrow market definition leads to higher market shares and a higher HHI.
- Barriers to Entry: High barriers to entry can sustain high market concentration and high HHI values over time.
- Dynamic Competition: In rapidly changing industries, HHI might be less indicative of long-term market power if market shares shift frequently.
Understanding these factors is crucial when using an HHI Calculator for antitrust or strategic purposes.
Frequently Asked Questions (FAQ) about the HHI Calculator
There isn’t a universally “good” or “bad” HHI. It’s a measure of concentration. According to U.S. DOJ/FTC guidelines:
- Below 1500: Unconcentrated market.
- 1500 to 2500: Moderately concentrated market.
- Above 2500: Highly concentrated market.
Mergers in moderately or highly concentrated markets that significantly increase HHI draw more scrutiny. Our HHI Calculator helps classify the market.
An HHI of 10,000 indicates a pure monopoly, where one firm has 100% market share (1002 = 10,000).
An HHI close to zero suggests a highly competitive market with a very large number of firms, each having a tiny market share.
Regulators look at both the post-merger HHI level and the increase in HHI caused by the merger (delta HHI). Large increases in highly concentrated markets raise significant competitive concerns. The HHI Calculator can be used to estimate post-merger HHI.
HHI doesn’t account for factors like the ease of entry into the market, the power of buyers, or the dynamic nature of some industries. It’s also sensitive to market definition and requires accurate market share data.
Yes, the HHI Calculator can be applied to any industry provided you have reliable market share data for the firms within a well-defined market.
Ideally, the sum should be 100%. If it’s significantly different, it suggests either incomplete data or an incorrectly defined market. The calculator will still compute an HHI based on the shares you enter, but the total share accounted for is also displayed for context.
This HHI Calculator allows you to enter market shares for up to 10 firms, which is usually sufficient for most HHI analyses as smaller firms contribute very little to the index.