Herfindahl index

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A measure of the degree of competition within a particular industry. It is calculated as the sum of the squares of the individual market shares of all known players in that industry. The Index is considered a better measure than simple concentration ratios (e.g. the four-firm concentration ratio) because it reflects the distribution of market share throughout an industry while giving greatest weight to that of the largest firms. An index figure of 1000 or more is usually held to indicate a fairly high level of concentration: although regulatory regimes differ, a merger that caused a further significant rise in the index (say by 50 points) would normally prompt the interest of competition watchdogs.

Subjects: Business and Management — Economics.

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