The hhi is calculated by squaring the market share of each firm in the industry and summing the resulting numbers. The herfindahl index h is the sum of the squared firm sizes, all measured as a proportion of total market size. The herfindahlhirschman index hhi is a commonly accepted measure of market concentration. The herfindahl hirschman index hhi is a measurement used to understand the level of competition that exists within a market or industry, as well as give an indication of how the distribution of market share occurs across the companies included in the index.
The herfindahlhirschman index is an index that measures the market concentration of a. For example, consider an industry consisting of six firms with the following allocation of market shares. The lerner index measures the degree to which firms can markup price above marginal cost. The herfindahlhirschman index, or hhi, is calculated by squaring the market share of each company in an industry, and then adding the. The concentration of market power is typically measured by the hirschmanherfindahl index hhi. Btw, lazy was made to be fit and proper by the growth of techyness and nerdyness lazy evaluation. Some notes on applying the herfindahlhirschman index 5 oligopolies with partially cooperative. The hhi is calculated by squaring the market share of each firm in the industry and summing the result. Feb 11, 2020 the herfindahlhirschman index hhi is a commonly accepted measure of market concentration. Herfindahlhirschman index, hhi technology and ip law glossary.
For example, imagine an industry in which the four largest firms have the following market shares. The inverse herfindahlhirschman index as an effective. It is calculated by adding the market sharesthat is, the percentage of total salesof the four largest firms in the market. The herfindahlhirschman index, better known as the herfindahl index, is a statistical measure of concentration. I know of the command ssc install hhi, but i do not manage to get it working. When a new company enters the market, the changes in the hhi reflect the change in concentration. How to calculate the herfindahlhirschman index bizfluent. The fourfirm concentration ratio and herfindahlhirschman index measure industry concentration. If all firms in the market are the same size, then the value of the index is equal to the reciprocal of the number of firms. To calculate the hhi, take the market shares of the four largest firms in an industry, square each of these numbers and then sum them. Note that the hhi gives greater weight to large firms.
The herfindahlhirschman index hhi is a measure of the degree of concentration in an industry. To complement the above indicia, the guidelines also apply the herfindahlhirschman index hhi, and the change in the hhi from premerger to postmerger delta as first indications of the change in competitive pressure in the market following the merger. Apr 15, 2016 when i am lazy, or looking for a quick snap, i like to browse images related to a search. For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the hhi is. Where can i locate the concentration ratio and herfindahl. Jul 31, 2018 the term hhi means the herfindahlhirschman index, a commonly accepted measure of market concentration. The original herfindahlhirschman index hhi has long been used as a measure of industry concentration, debuting in the department of justices horizontal merger guidelines in 1982. It is calculated by squaring the market share of each firm competing in a market and then summing the. Herfindahlhirschman index, hhi technology and ip law. Using the above example, the market structure is equivalent to having 10. After defining the boundaries of a market and calculating each firms share e. I have run regressions and got significant results. Any firm with the ability to set prices above the marginal cost is considered to have a certain amount of market power lerner, 1934. In some cases, weighting had a substantial effect on the aggregate hhi.
Feb 19, 2020 the herfindahlhirschman index hhi for manufacturing industries only. The hhi is basically a measure of market concentration, but when inverted, it is an effective number of whatever. Louis feds banking market structure and competitive analysis online application. The herfindahlhirschman index hhi is a widely used measure of market concentration. The sum of the squares of each brands market shares. May 15, 2018 the original herfindahlhirschman index hhi has long been used as a measure of industry concentration, debuting in the department of justices horizontal merger guidelines in 1982. Glossaryherfindahlhirschman index hhirelated contenta measure of market concentration levels that takes into account the number, relative size, and distribution of competitors in a market. Department of justice uses to determine whether a monopoly is forming. Apr 26, 2018 herfindahlhirschman index hhi horvath index. A mathematical calculation that uses marketshare figures to determine whether a proposed merger will be challenged by the government. Banking markets and hhi federal reserve bank of st. It allows user to generate new hhi variables for large data panels and export output in table format.
What are the benefits and shortfalls of the herfindahlhirschman index. Organisational structure of the hhi is arranged into several departments. The main shortcoming of the hhi is its sensitivity for the relevant. Consider the earlier example, comparing one industry where five firms each have 20% of the market with an industry where one firm has 77% and the other 23. A herfindahlhirschman index hhi is another way of measuring the extent of competition in a market. Herfindahlhirschman index hhi the sum of the squared market shares of firms in a given industry, multiplied by 10,000. What is the herfindahl hirschman index hhi and why would. Hydrographic activity starts with the survey of the sea, in the internal waters and territorial sea, and the ecological and fisheries protection zone zerp of the republic of croatia, covering a total surface area of about 55,349 km.
The term hhi means the herfindahlhirschman index, a commonly accepted measure of market concentration. Industry performance is measured by industry profitability and social welfare. Where can i find a chart of the us herfindahlhirschman index. The hhi is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. Patient reported outcome measures data linked to nhs hospital episode statistics in england in 201112 were used to analyse the association between market concentration of hospitals measured by the herfindahlhirschman index hhi and health gains for 337 hospitals. Cassidi also offers an array of mapping options, enabling you, for example, to view banking market boundaries, find depository. A herfindahlhirschman index hhi is another way of measuring the extent of competition in a.
The herfindahlhirschman index hhi is a well known concentration measure, which is both widely used and widely criticized. Dec 17, 2012 i learned of the passing of albert hirschman on december 11, and while better and more instructive tributes to his life can be read elsewhere, i wanted to focus on a little piece of hirschmans work that i use all the time. For example, the merger guidelines state the goal is to reduce the uncertainty associated with enforcement of the antitrust laws in this area. The hhi is calculated by squaring the market share of each merging firm competing in the marke. The herfindahlhirschman index hhi is calculated for the 50 largest companies manufacturing industries only. I would like to make herfindahlhirschman index to strengthen my thesis. When the firms have unequal shares in the industry, the reciprocal of the index indicates the equivalent number of firms in the industry. Generally, from this, one can track back to source. For example, in 2018, anheuserbusch inbev held about 41% of the u. When i am lazy, or looking for a quick snap, i like to browse images related to a search.
Sep, 2019 to calculate the hhi for a proposed merger using the herfindahlhirschman index formula, add the squares of each companys market share. Hhi fails to consider barriers to entry and firm turnover. Design elements big hhi logo jpg, 291 kb download small hhi logo jpg, 118 kb download. A herfindahlhirschman index score of about 2,500 suggests that the market has an oligopoly it is controlled by very few companies. Market structure measures of industry concentration. Herfindahl index financial definition of herfindahl index. Association between market concentration of hospitals and.
The formula to calculate herfindahlhirschman index is as follows. Oct 03, 2011 home improvement stores and the hirschmanherfindahl index posted on october 3, 2011 by christopherlinker the home improvement stores industry includes stores that sell a broad range of home repair and maintenance goods like hardware, tools and electrical goods, as well as lumber and structural material for construction and renovations. The maximum possible hhi, one where 100 percent of the market is held by a single monopolist is 10,000, while for example a market with ten participants each with a 10 percent market share would have an hhi of 1,000 and would be regarded as beginning to be an oligopoly. An index is a pointer, like the index finger for example. Herfindahlhirschman index dictionary definition herfindahl. Hhi index is the most widely used index for calculating market concentration. Through cassidi, users are able to view banking market structures and definitions, view the banking markets a particular depository institution operates in, and perform what if pro forma analyses to.
For example, if the hhi for the transportation and material moving. Economists and antitrust policymakers have long used a simple formula to assess the concentration in a market. In the present article we will learn how to calculate these indices in r and also study their limitations. The module supports multiple variables and group ids and allows user to export output in table format csv comma delimited. Dec 12, 2014 the herfindahlhirschman index hhi is calculated for the 50 largest companies manufacturing industries only. Hirschman, it is an economic concept widely applied in competition law, antitrust and also technology management. Which herfindahlhirschman index is most likely to indicate a perfectly competitive market. A widget example of the herfindahlhirschman index federal. Herfindahlhirschman index an index of market concentration the u.
The role of market shares and market concentration indices. I learned of the passing of albert hirschman on december 11, and while better and more instructive tributes to his life can be read elsewhere, i wanted to focus on a little piece of hirschmans work that i use all the time. Another approach to measuring industry concentration that can distinguish between these two cases is called the herfindahlhirschman index hhi. Stata module to generate herfindahlhirschman index. Firm concentration is rising, particularly in retail and. Oct 30, 2019 what are the benefits and shortfalls of the herfindahlhirschman index. Pdf some notes on applying the herfindahlhirschman index. Market concentration herfindahlhirschman index the marketing. The herfindahl index also known as herfindahlhirschman index, hhi, or sometimes hhiscore is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. Market concentration levels in the us consumer book industry jstor. The hhi is calculated by summing the squares of the market shares. Practical examples of key index numbers measuring market domination abuse in the electricity sector andras sugar associate professor corvinus university of budapest email. It has achieved an unusual degree of visibility for a statistical index because of its use by. See herfindahlhirschman index yes, id like to receive word of the day emails from.
The scale goes from zero to 10,000, with 10,000 indicating that a single company controls 100% of the market share in a given industry. Where can i find a chart of the us herfindahlhirschman. Herfindahlhirschman index hhi learn how to calculate the hhi. Herfindahlhirschman index hhi definition investopedia. A fourfirm concentration ratio is one way of measuring the extent of competition in a market. The worlds most comprehensive professionally edited abbreviations and acronyms database all trademarksservice marks referenced on this site are properties of their respective owners. Home improvement stores and the hirschmanherfindahl index posted on october 3, 2011 by christopherlinker the home improvement stores industry includes stores that sell a broad range of home repair and maintenance goods like hardware, tools and electrical goods, as well as lumber and structural material for construction and renovations. If a merger occurs between say, participant a and participant b, the hhi would then be recalculated thus. The hhi takes into account the relative size and distribution of the firms in a market and approaches zero when a market consists of a.
Pdf dynamics of the hirschmanherfindahl index under new. The hhi, as it is often called, is calculated by summing the squares of the market share of each firm in the industry, as the following work it out shows. Is this index possible to make in stata, or do i have to look elsewhere. It is the indication of amount of competition among the firms. To calculate the hhi for a proposed merger using the herfindahlhirschman index formula, add the squares of each companys market share. Principles of microeconomicscorporate mergers wikibooks. Adjusting the herfindahl index for close substitutes. If, for example, there were only one firm in an industry, that firm would have 100%.
We calculate it by adding the market sharesthat is, the percentage of total salesof the four largest firms in the market. The herfindahlhirschman index hhi this is also referred to as the herfindahl index, and it is more complex than the crx. Impact of highspeed rail on market concentration and. The offers that appear in this table are from partnerships from which investopedia receives. Home improvement stores and the hirschmanherfindahl index. An hhi of less than indicates a market with little concentration, which.