In Industry A, the largest four firms together have a 30 percent share of the market and there are a total of eight firms in the market. In Industry B, the largest four firms together have a 30 percent share of the market and there are 100 other firms in the market. If we want to distinguish between the concentration in these two industries, the best measure to use is the

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The Herfindahl index, which squares the market share of each firm before summing these squares, is more sensitive to the distribution of market share across all firms, making it better suited for distinguishing concentration in industries with a different number of firms but the same four-firm concentration ratio.

In Industry A, the Largest Four Firms Together Have a 30