What is Herfindahl-Hirschman index in Economics?

  • A measure of the degree to which production in a market is either concentrated or dispersed.

  • A market in which production is divided among several producers is considered to be less concentrated than one in which all production is in the hands of just one producer.

  • The Herfindahl-Hirschman index is used by anti-trust agencies which possess the mandate to promote competition.

  • It is calculated by squaring the market share of each producer in the market and then comparing the sum to a scale.

  • Critics of the idea say that the lack of legal barriers to entry is a better measure to gauge competition in any market.


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