Definition
The Herfindahl Index is a market concentration metric derived by adding the squares of the individual market shares of all the players in a market. As a sum of squares, this index tends to rise in markets dominated by large players. [1]
Also called the Herfindahl-Hirschman Index (HHI,) this common measure of market concentration is used to determine market competitiveness, often pre- and post-merger and acquisition transactions. [2]
A market with an HHI of less than 1,500 is considered a competitive marketplace, an HHI of 1,500 to 2,500 is moderately concentrated, and an HHI of 2,500 or greater is highly concentrated. [2]
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References
- Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; and David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance (Second Edition). Upper Saddle River, New Jersey: Pearson Education, Inc.
- Investopedia, Herfindahl-Hirschman Index (HHI): Definition, Formula, and Example.