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Calculating hhi

Step 1. Calculate the HHI for a monopoly with a market share of 100%. Because there is only one firm, it has 100% market share. The HHI is 100 2 = 10,000.

Step 2. For an extremely competitive industry, with dozens or hundreds of extremely small competitors, the value of the HHI might drop as low as 100 or even less. Calculate the HHI for an industry with 100 firms that each have 1% of the market. In this case, the HHI is 100(1 2 ) = 100.

Step 3. Calculate the HHI for the industry shown in [link] . In this case, the HHI is 16 2 + 10 2 + 8 2 + 7(6 2 ) + 8(3 2 ) = 744.

Step 4. Note that the HHI gives greater weight to large firms.

Step 5. Consider the example given earlier, comparing one industry where five firms each have 20% of the market with an industry where one firm has 77% and the other 23 firms have 1% each. The two industries have the same four-firm concentration ratio of 80. But the HHI for the first industry is 5(20 2 ) = 2,000, while the HHI for the second industry is much higher at 77 2 + 23(1 2 ) = 5,952.

Step 6. Note that the near-monopolist in the second industry drives up the HHI measure of industrial concentration.

Step 7. Review [link] which gives some examples of the four-firm concentration ratio and the HHI in various U.S. industries in 2009. (You can find market share data from multiple industry sources. Data in the table are from: Verizon (for wireless), The Wall Street Journal (for automobiles), IDC Worldwide (for computers) and the U.S. Bureau of Transportation Statistics (for airlines).)

Examples of concentration ratios and hhis in the u.s. economy, 2009
U.S. Industry Four-Firm Ratio HHI
Wireless 91 2,311
Largest five: Verizon, AT&T, Sprint, T-Mobile, MetroPCS
Automobiles 63 1,121
Largest five: GM, Toyota, Ford, Honda, Chrysler
Computers 74 1,737
Largest five: HP, Dell, Acer, Apple, Toshiba
Airlines 44 536
Largest five: Southwest, American, Delta, United, U.S. Airways

In the 1980s, the FTC followed these guidelines: If a merger would result in an HHI of less than 1,000, the FTC would probably approve it. If a merger would result in an HHI of more than 1,800, the FTC would probably challenge it. If a merger would result in an HHI between 1,000 and 1,800, then the FTC would scrutinize the plan and make a case-by-case decision. However, in the last several decades, the antitrust enforcement authorities have moved away from relying as heavily on measures of concentration ratios and HHIs to determine whether a merger will be allowed, and instead carried out more case-by-case analysis on the extent of competition in different industries.

New directions for antitrust

Both the four-firm concentration ratio and the Herfindahl-Hirschman index share some weaknesses. First, they begin from the assumption that the “market” under discussion is well-defined, and the only question is measuring how sales are divided in that market. Second, they are based on an implicit assumption that competitive conditions across industries are similar enough that a broad measure of concentration in the market is enough to make a decision about the effects of a merger. These assumptions, however, are not always correct. In response to these two problems, the antitrust regulators have been changing their approach in the last decade or two.

Questions & Answers

how did Mc connel defined economics
Isaac Reply
what is a economy planning?
Jacob Reply
what is demand
Sunday Reply
demand means desire for a commodity backed by willingness & ability to pay for that commodity
Rajesh
what is supply
Akoheni
supply means suppliers supplying more commodities when price's high or less when price's low to satisfy human want
Prince
the coefficient of price elasticity of supply is the measure of percentage change in the quantity supplied of a good due to a given percentage change in its price.
Khushiba
Please what is Economics of Scales?
Prince
what is cardinal and ordinal utility?
Khushiba
Cardinal utility is the satisfaction derived by the consumers from the consumption of goods and services while ordinal is ranked in terms of preference.
Grace
👍
Khushiba
Please explain what is meant by Economic Integration?
Prince
Please I need help!!!!
Prince
economics scales I don't know but I know laws of returns to scale
Khushiba
hello
TIMAH
hello
Khushiba
can someone help explain to me what is fairly inelastic dd
TIMAH
Economics Economics - The study of how people use their limited resources to try to satisfy unlimited wants
Abdullah
Economic integration has been one of the main economic developments affecting international trade in the last years. Countries have wanted to engage in economic cooperation to use their respective resources more effectively and to provide large markets for member-countries of the resulting integrate
Abdullah
Inelastic Demand When consumers are relatively unresponsive to price changes. A PED coefficient of less than one means that a particular change in the price of a good will be met by a proportionally smaller change in the quantity demanded.
Abdullah
what is development planning?
Emmanuel Reply
What is economics?
Shubham Reply
economics is study of scarcity and how humans make decisions.
sade
reason for development planning in West Africa
Emmanuel
what is development planning?
Emmanuel
What is homo Economicus?
nongo Reply
when a person is part 50% rational and the other part of him is 50% focused on money as an incentive
Yahir
what makes the economy to be stable
BELDON Reply
what measures are necessary to the economy which is not doing fine
BELDON
must find out the problems originating from and take remedy for it.
Rigved
Economics as a social science Discuss
Sire
list and explain three implication of balance of payment disequilibrium
Jayson Reply
In economics pollution, what's spillover?
Chinedum Reply
what is net national income
Ibrahim Reply
relation between business economics and traditional economics
Netra Reply
more explanation on GDP
Isaac Reply
it is a country total out put of goods and services divided by the total population of the country.I think it can also be derived from the country labour force,,because it mostly depend on the labour force and the level of technology .
Tantoh
labour force and technological progress leads to greater production increases the GDP
Ahmed
what is elasticity of demand
Jessica
degree of responsiveness of demand to changes in price and other factors that influence demand.
OBIAJULUM
It is the degree of responsiveness of demand and supply to a little change in price of a goods and services
Ibrahim
What is economics?
Bubu Reply
by this time
Emmanuel
It is a social science that analyses production,distribution and consumption of goods and services
Emmanuel
A social science that study human behavior in relationship with decision making
Jessica
a social science that studies human behavior as a relationship between ends and scarce means which has alternative uses
Charllote
it is a science that study human begin as a relation to ends and scarce should which have alternative uses
Ibrahim
the science in which we study about the investement of our wealth.
Atteq
what is competitive demand
joe
a competitive demand is also known as substitute demand .the moment the price of the commodity increase consumers will purchase the other other commodity which it's price is low and the vice versa. an example is milo and bournvita
Yussif
what is different between equilibrium and demand?
Moses
equilibrium is a situation where market is stable there is no entry nor exit. demand is the willingness to pay Which is backed by law.
Yussif
list and explain three implication of balance of payment disequilibrium?
Jayson
Economics is a social science that study's human behaviour as a relationship between ends and scares means which have alternative uses
Patrick
What are the typical patterns of GDP for a high-income economy like the United States in the long run and the short run?
mwangala Reply
What are the limitation and significant of macroeconomic
Usman Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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