Suppose there are four banks in a local community.Each of these banks has 25 percent of the deposits in this community.What is the Herfindahl-Hirschman Index (HHI)for this community?

Question

Quizplus · Accepted Answer

The HHI is calculated by squaring the market share of each firm in the market and summing the resulting numbers. 
For this community, each bank has a 25 percent share, so the HHI would be:

HHI = (0.25)^2 + (0.25)^2 + (0.25)^2 + (0.25)^2
HHI = 0.0625 + 0.0625 + 0.0625 + 0.0625
HHI = 0.25
HHI = 2500

Therefore, the HHI for this community is 2500, which is option C.

Suppose There Are Four Banks in a Local Community