Herfindahl–Hirschman index

Ever wondered how to measure market competition?

Imagine you're at a grocery store with many small shops versus one giant supermarket chain. How do we know which one offers more choices?

The Herfindahl-Hirschman Index (HHI) helps us see how many stores there are and how big they are compared to others. It's like counting the shops and squaring their size to see the competition level.

Example

If there are 10 small shops each with 10% market share, HHI = 10² = 100. If one shop has 90% and others have 1%, HHI = 90² + 9 × 1² = 8101, showing less competition.

Remember this

HHI tells us about competition by looking at how big each store is compared to others.

Text adapted from Wikipedia, licensed under CC BY-SA 4.0.

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