Herfindahl-Hirschman Index Calculator

The Herfindahl-Hirschman Index (HHI) calculator is used to measure market concentration and competition within an industry.

Let’s consider a simplified smartphone market with four main players:

• Company A: 40% market share
• Company B: 30% market share
• Company C: 20% market share
• Company D: 10% market share

The HHI calculator would square each market share percentage and sum them up:

HHI = 40² + 30² + 20² + 10² = 1,600 + 900 + 400 + 100 = 3,000

This result indicates a moderately concentrated market.

HHI Calculation Chart

Herfindahl-Hirschman Index Formula

The HHI formula is:

HHI = Σ (Market Share %)²

Using market example:

HHI = 40² + 30² + 20² + 10² = 3,000

The HHI ranges from close to 0 (for a perfectly competitive market) to 10,000 (for a monopoly). U.S. antitrust authorities generally consider markets with HHI:

• Below 1,500 as competitive
• 1,500-2,500 as moderately concentrated
• Above 2,500 as highly concentrated

Our example HHI of 3,000 suggests a highly concentrated market.

How Do You Calculate the Herfindahl-Hirschman Index?

Calculating the HHI involves these steps:

Identify all firms in the market: List every company competing in the industry.

Calculate market shares: Determine each firm’s percentage of the total market.

Square the market shares: Multiply each market share percentage by itself.

Sum the squares: Add up all the squared percentages.

Let’s use a more complex example of a grocery market:

• Supermart: 35% market share
• FreshFoods: 25% market share
• QuickStop: 15% market share
• LocalGrocer: 10% market share
• Five smaller stores: 3% market share each

Calculation:

HHI = 35² + 25² + 15² + 10² + (3² × 5) = 1,225 + 625 + 225 + 100 + 45 = 2,220

This HHI of 2,220 indicates a moderately concentrated market, suggesting a reasonable level of competition but with a few dominant players.