What is the market's Herfindahl Hirschman Index (HHI)? $$\begin{array} { | c | r | }
\hline \text { Bank } & \text { Asset Size } \
\hline 1 & \text { \$100 million } \
\hline 2 & \text { \$200 million } \
\hline 3 & \text { \$500 million } \
\hline
\end{array}$$

Question

What is the market's Herfindahl Hirschman Index (HHI)? $$\begin{array} { | c | r | } 
\hline \text { Bank } & \text { Asset Size } \
\hline 1 & \text { \$100 million } \
\hline 2 & \text { \$200 million } \
\hline 3 & \text { \$500 million } \
\hline
\end{array}$$

Quizplus · Accepted Answer

The Herfindahl Hirschman Index (HHI) is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. Market shares are expressed as fractions of 1. In this case, the total market size is $800 million ($100 million + $200 million + $500 million). The market shares are 0.125 (100/800), 0.25 (200/800), and 0.625 (500/800) respectively. Squaring these gives 0.015625, 0.0625, and 0.390625. Summing these squared market shares gives an HHI of 0.46875, which, when expressed without the decimal, is 4,688.

What Is the Market's Herfindahl Hirschman Index (HHI) A)4,688 B)3,600

What Is the Market's Herfindahl Hirschman Index (HHI) A)4,688
B)3,600