HHI

Decomposing Herfindahl–Hirschman (HHI) Index

Jul 23, 2019
HHI

Herfindahl–Hirschman (HHI) Index is a well-known market concentration measure determined by two factors: 1) the size distribution (variance) of firms and 2) the number of firms. Intuitively, having a hundred similar-sized gas stations in town means a far less concentrated environment than just one or two available, and when the number of firms is constant, their size distribution or variance determines the magnitude of market concentration. Since these two properties jointly determine the HHI measure of concentration, naturally we want a decomposition of HHI that can reflects these two dimensions respectively. ...