The Herfindahl-Hirschman index tends to be lower when
A)one firm has 81 percent market share and all others have 1 percent each.
B)there are more firms in the industry.
C)the shares of each firm are more unequal.
D)the four largest firms control over 80 percent of the market share.
E)one or two firms have a large market share.

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman index is a measure of market concentration, and a higher number indicates a higher level of concentration. When there are more firms in the industry, the market is less concentrated, and therefore the Herfindahl-Hirschman index tends to be lower.

The Herfindahl-Hirschman Index Tends to Be Lower When