Open Question
Calculate HHI in the following industries:
One firm with 100% market share
Two firms with 50% market share
Four firms with market shares of 30%, 30%, 20%, and 20%
Ten firms with 10% market share
12. Monopoly
Mergers and the Herfindahl-Hirschman Index (HHI)
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The HHI for this industry is:
A
100
B
1,000
C
1,600
D
3,000
Verified step by step guidance1
Understand that the Herfindahl-Hirschman Index (HHI) is a measure of market concentration and is calculated by summing the squares of the market shares of all firms in the industry.
Identify the market shares of the firms from the table: Firm 1 has 40%, Firm 2 has 30%, Firm 3 has 20%, and Firm 4 has 10%.
Convert the percentage market shares into decimals for calculation: 40% becomes 0.40, 30% becomes 0.30, 20% becomes 0.20, and 10% becomes 0.10.
Square each of the market shares: (0.40)^2, (0.30)^2, (0.20)^2, and (0.10)^2.
Sum the squared market shares to find the HHI: (0.40)^2 + (0.30)^2 + (0.20)^2 + (0.10)^2.
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