What is the HHI Index?
The Herfindahl index (also known as Herfindahl–Hirschman Index, HHI, or sometimes HHI-score) measures the size of firms in relation to an industry. Economists Orris C. Herfindahl and Albert O. Hirschman developed this tool. It is an economic concept widely applied in competition law, antitrust regulation and technology management to evaluate and understand the extent of market concentration.

How is it calculated?
HHI is calculated by squaring the market share of each competing firm in the industry and then summing the resulting numbers. The result is proportional to the average market share, weighted by market share.

How to interpret the results?
As such, it can range from 0 to 1.0, moving from a huge number of very small firms to a single monopolistic producer. Alternatively, the index can be expressed per 10,000 "points". For example, an index of .25 is the same as 2,500 points. Increases in the HHI generally indicate a decrease in competition and an increase of market power, whereas decreases indicate the opposite.

Credit:

Syed Abid and Subia Syed contributed to the conceptual framework. Tauheed Akhtar developed the code. Navneet Sharma conceptualized and led the development of the HHI Calculator. Feedback and suggestions are welcome at: nas@circ.in