An industry consists of five firms with annual sales of $130,$50,$40,$10 and $60.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 are expressed as percentages. For this industry, the market shares are 52% ($130/$250), 20% ($50/$250), 16% ($40/$250), 4% ($10/$250), and 24% ($60/$250). Squaring these and summing gives: 2704 (52^2) + 400 (20^2) + 256 (16^2) + 16 (4^2) + 576 (24^2) = 2,937.

An Industry Consists of Five Firms with Annual Sales of $130,$50,$40,$10