If a market is shared equally by four firms,the Herfindahl-Hirschman Index is
A)1/4.
B)4.
C)25.
D)100.
E)2,500.

Question

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. If the market is shared equally by four firms, each firm has a 25% (or 0.25) share of the market. Squaring this (0.25^2) gives 0.0625. Summing this result for all four firms (0.0625 * 4) gives an HHI of 0.25, or when expressed as a percentage, 2500.

If a Market Is Shared Equally by Four Firms,the Herfindahl-Hirschman