The Herfindahl-Hirschman Index

The Herfindahl-Hirschman Index (HH index) is a devise for estimating the degree of concentration in a particular market. It is calculated by adding the squares of the market shares for all firms in a market. For practical reasons only the market shares of the top few firm’s are calculated.  For example, if firm A has 25% market share, firm B has 20% and firm C has 15%, then the H-H score is 252 x 202 x 152, which is: 625 + 400 + 225 = 1250. The maximum level of concentration would be for a pure monopoly, which has an H-H score of 10,000 (1002). The general rule is that a score of less than 1000 means the market is not highly concentrated; a score between 1000 and 1800 means moderate concentration and a score in excess of 1,800 means highly concentrated.

For example, the H-H index for mobile phone operators in the UK in 2009 was 1794.