How this calculator works
The Herfindahl-Hirschman index squares each firm's percentage market share and adds the squares. Squaring gives large firms much more weight, so a market with one dominant firm scores far higher than a market split evenly among many. The index ranges from close to zero for many tiny firms to 10,000 for a single firm with 100% of the market. The effective number of firms divides 10,000 by the index and shows the equivalent number of equal-sized competitors.
Formula
HHI = Σ (market share of firm i)², with each share expressed in percentage points. Effective number of firms = 10,000 / HHI.
Worked example
Shares of 30%, 25%, 20%, 15% and 10% square to 900, 625, 400, 225 and 100. The HHI is 2,250, which falls in the moderately concentrated range, and the effective number of firms is 10,000 / 2,250 = 4.44.
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Frequently asked questions
What do the concentration thresholds mean?
Under United States merger guidelines, an index below 1,500 is usually treated as unconcentrated, 1,500 to 2,500 as moderately concentrated and above 2,500 as highly concentrated. Other jurisdictions set their own thresholds, so use the guidance that applies to your market.
Must the shares add up to 100%?
Yes, for the index to be interpreted on the usual scale. Include every firm in the relevant market and use the same measure of size, such as revenue or units sold, for all of them. The calculator allows a 0.01 rounding tolerance.
How is HHI used in merger review?
Competition authorities calculate the index before and after a proposed merger and look at the change as well as the level. A large increase in an already concentrated market attracts more scrutiny. The index is one input among many, including barriers to entry and buyer power.