The Herfindahl-Hirschman Index
A) is the equivalent of the eight-firm concentration ratio.
B) is the sum of the squares of each market share of each company in the industry.
C) cannot be used to measure market power for purposes of evaluating mergers.
D) takes the top four firms in the industry and adds up their market power.

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by summing the squares of the market shares of each firm within the industry, making choice B correct. It is a more comprehensive measure of market concentration than simple concentration ratios, as it takes into account the distribution of market shares among all firms in the industry, not just the largest ones.