Suppose there are four firms in an industry. The market shares of the four firms are 5 percent, 20 percent, 35 percent, and 40 percent. The Herfindahl-Hirschman index for that industry is

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The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market share of each firm and then summing the results: (5^2) + (20^2) + (35^2) + (40^2) = 25 + 400 + 1225 + 1600 = 3,250.

Suppose There Are Four Firms in an Industry