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How to Calculate Market Share With the Herfindahl Index

Original post by Sean Mullin of Demand Media

The Herfindahl-Hirschman Index (HHI) measures the market share of the major firms in a single industry to determine and prevent monopolization and antitrust violations. The HHI scores market share using numbers in the thousands: according to 2010 merger guidelines published by the Department of Justice and Federal Trade Commission, markets scoring below 1500 are unconcentrated, whereas scores between 1500 and 2500 are moderately concentrated and scores above 2500 are highly concentrated.

Step 1

Identify the major firms in an industry. Consult reliable sources such as the Department of Justice or Federal Trade Commission for an analysis of each firm's percentage of the market in that industry.

Step 2

Square the market share percentage of each firm. Consider for example an industry with three major firms: the firms have 60, 30 and 10 percent of the market. Square each percentage to create the figures of 3600, 900 and 100.

Step 3

Add the squared percentages together to create the Herfindahl-Hirschman Index (HHI) number for that industry. The example industry in Step 2 would have an HHI number of 4600.

                   

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About the Author

Sean Mullin has been creating content for providers such as eHow since 2007. He also worked in an online writing center for college students. In addition to writing, Sean has a Master of Arts in classics and teaches Greek and Latin part-time at the college level.

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