An industry consists of six firms with annual sales of $300,$500,$400,$700,$600,and $600.What is the industry's HHI?

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. Market shares must be expressed as whole numbers, not percentages. In this case, the total sales for the industry are $300 + $500 + $400 + $700 + $600 + $600 = $3100. The market shares as whole numbers are: (300/3100)^2 + (500/3100)^2 + (400/3100)^2 + (700/3100)^2 + (600/3100)^2 + (600/3100)^2 = 0.0094 + 0.0260 + 0.0166 + 0.0509 + 0.0374 + 0.0374 = 0.1777. Multiplying by 10,000 (to avoid dealing with decimals) gives an HHI of 1,777.

An Industry Consists of Six Firms with Annual Sales of $300,$500,$400,$700,$600,and