Herfindahl-Hirschman Index

The Herfindahl-Hirschman Index (HHI) is a standard economic measure of market concentration. It is computed by squaring the market share (expressed as a percentage) of each firm competing in a market and then summing the resulting numbers. The score ranges from close to 0 in a perfectly competitive market to 10,000 in a pure monopoly where a single firm holds 100% of the market.

The index is named after economists Orris C. Herfindahl and Albert O. Hirschman, who developed similar formulations independently in the mid-20th century. Squaring market shares gives disproportionate weight to larger firms, which makes the HHI more sensitive to the presence of dominant players than a simple concentration ratio (such as CR4, the combined share of the top four firms).

In the United States, the Department of Justice and Federal Trade Commission use HHI thresholds in their Merger Guidelines to flag transactions that may raise antitrust concerns. Under the 2023 Merger Guidelines, a post-merger market with an HHI above 1,800 is generally considered highly concentrated, and a merger that increases the HHI by more than 100 points in such a market is presumed to enhance market power. The European Commission applies its own thresholds in horizontal merger review under Regulation 139/2004.

Beyond antitrust, the HHI is used in:

• Trade policy — to measure export concentration by product or destination, an indicator tracked by UNCTAD.
• Banking supervision — to assess systemic risk and local deposit concentration.
• Energy security analysis — to gauge dependence on a small number of supplier countries for oil, gas, or critical minerals.

Limitations include sensitivity to how the relevant market is defined, reliance on accurate share data, and the fact that it captures structure rather than actual competitive conduct. Analysts typically pair HHI scores with qualitative assessments of entry barriers, product differentiation, and buyer power.