Industry A has four firms. The largest firm in Industry A has more than 90 percent of the market share. Industry B also has four firms, but each of those four firms in Industry B has 25 percent of the market share. The Herfindahl-Hirschman index will be

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The Herfindahl-Hirschman index measures market concentration by squaring the market share of each firm and summing the squares. In Industry A, the largest firm has a market share of 90 percent which results in a Herfindahl-Hirschman index of 8,100 (90^2). In Industry B, each of the four firms has a market share of 25 percent which results in a Herfindahl-Hirschman index of 2,500 (4*25^2). Therefore, the Herfindahl-Hirschman index is larger for Industry A than Industry B. However, in terms of four-firm concentration, Industry A has only one firm with over 90 percent market share, while Industry B has four firms each with 25 percent market share. Therefore, the four-firm concentration is larger for Industry B than Industry A.

Industry a Has Four Firms