Herfindahl-Hirschman Index (HHI) โ Smart Financial Analysis
Calculate market concentration using the Herfindahl-Hirschman Index (HHI)
Why This Matters for Your Finances
Why: The HHI is a measure of market concentration calculated by squaring each firm\
How: Enter Measurement Type, Include Normalized HHI to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
- โThe HHI is a measure of market concentration calculated by squaring each firm.
- โHHI = sum of (market share)^2.
- โBelow 1,500 = unconcentrated (competitive); 1,500โ2,500 = moderately concentrated; above 2,500 = highly concentrated.
- โRegulators calculate pre-merger and post-merger HHI.
๐ Sample Examples โ Click to Load
Market Participants
Enter market shares (sum to ~100% for percentages).
| Company | Share (%) | Action |
|---|---|---|
HHI Visualization โ Market Share Squared
Market Concentration Comparison
Market Share Distribution
HHI Threshold Zones
Market Concentration
This market is moderately concentrated
โ ๏ธFor educational purposes only โ not financial advice. Consult a qualified advisor before making decisions.
๐ก Money Facts
Herfindahl-Hirschman Index (HHI) analysis is used by millions of people worldwide to make better financial decisions.
โ Industry Data
Financial literacy can increase household wealth by up to 25% over a lifetime.
โ NBER Research
The average American makes 35,000 financial decisions per yearโmany can be optimized with calculators.
โ Cornell University
Globally, only 33% of adults are financially literate, making tools like this essential.
โ S&P Global
The HHI: DOJ & FTC's Primary Antitrust Tool
The HHI is the DOJ and FTC's primary tool for evaluating market concentration in antitrust cases. Calculate it by squaring each company's market share and summing. Below 1,500 = competitive; 1,500โ2,500 = moderately concentrated; above 2,500 = highly concentrated. Google Search at HHI 7,626 is effectively a monopoly by this measure. The DOJ blocked the PenguinโSimon & Schuster merger partly based on HHI analysis.
Sources
DOJ Antitrust Division, FTC, Federal Reserve, CFA Institute
How to Calculate HHI
HHI = sum of (market share)ยฒ. For percentages: square each share and sum. Example: 30ยฒ + 25ยฒ + 20ยฒ + 25ยฒ = 900 + 625 + 400 + 625 = 2,550. The index gives more weight to larger firms, making it sensitive to dominant players.
DOJ/FTC HHI Thresholds
| HHI Range | Classification |
|---|---|
| Below 1,500 | Unconcentrated |
| 1,500 to 2,500 | Moderately Concentrated |
| Above 2,500 | Highly Concentrated |
HHI for Mergers
Regulators calculate pre- and post-merger HHI. In highly concentrated markets (HHI > 2,500), an increase of 200+ points is presumed to enhance market power. In moderately concentrated markets, increases of 100+ points may raise concerns.
Concentrated vs Competitive Markets
Competitive markets (HHI < 1,500) have many firms: US grocery (881), US banking (614). Concentrated markets (HHI > 2,500) have few dominant players: US wireless (2,800), Google Search (7,626).
HHI Limitations
HHI doesn't account for barriers to entry, geographic boundaries, or product differentiation. Market definition is subjective. Regulators use HHI as one tool among many in competitive analysis.
Real-World Examples
US wireless: T-Mobile, AT&T, Verizon each ~30% โ HHI 2,800 โ highly concentrated. US grocery: Walmart 25%, Kroger 10%, others fragmented โ HHI 881 โ competitive. Google Search: 87% share โ HHI 7,626 โ near monopoly.
Normalized HHI
Normalized HHI = (HHI - 1/N) / (1 - 1/N) where N is the number of firms. It scales from 0 (perfect competition) to 1 (monopoly), allowing comparison across markets with different numbers of participants.
When to Use HHI
Use HHI for merger analysis, market competitiveness assessment, economic research, and investment strategy. Ensure market shares sum to ~100% and include all significant players for accurate results.
Further Reading
DOJ Horizontal Merger Guidelines, FTC merger review process, CFA Institute market structure analysis. For related tools, see the ROI Calculator, Market Share Calculator, and Break-Even Calculator.