What is a good HHI index?

What is a good HHI index?

Key Takeaways. The Herfindahl-Hirschman Index (HHI) is used to determine market competitiveness. A market with an HHI of less than 1,500 is considered a competitive marketplace, an HHI of 1,500 to 2,500 is moderately concentrated, and an HHI of 2,500 or greater is highly concentrated.

How do I get Herfindahl-Hirschman Index?

The term “HHI” means the Herfindahl–Hirschman Index, a commonly accepted measure of market concentration. The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers.

What is the difference between HHI and concentration ratio?

Concentration ratio of market concentration is usually measured as the sum of the market shares of four, eight or twelve largest companies in an industry. Herfindahl-Hirschman index of market concentration is expressed as the sum of squared market shares of all firms in an industry.

What is the HHI index for oligopoly?

A Herfindahl-Hirschman Index score of about 2,500 suggests that the market has an ‘oligopoly’ – it is controlled by very few companies.

How do you use the Herfindahl Index?

You can calculate Herfindahl Index by squaring the market share for each firm (up to 50 firms) and then adding the squares. In a perfectly competitive market, HHI should approach zero. Let’s say there are thousands of restaurants in your city, but the top 50 each have 0.1% of the market share.

What is the 4 firm concentration ratio?

Concentration ratio: The combined percentage of total industry output accounted for by the largest producers in the industry. For example, the four-firm concentration ratio (CR4) refers to the market share of the four largest firms. The higher the concentration ratio, the more concentrated the industry.

How do you calculate HHI and CR4?

Add together the total sales for each of the four largest firms in your selected industry. Then divide that sum by the total sales of the industry. Convert that result to a percentage, and that percentage value is the four-firm concentration ratio.

What does concentration ratios and the Herfindahl index measures?

Competition economists and competition authorities typically employ concentration ratios (CRn) and the Herfindahl-Hirschman Index (HHI) as measures of market concentration. The concentration of firms in an industry is of interest to economists, business strategists and government agencies.

How do you interpret concentration ratios?

The concentration ratio ranges from 0% to 100%, and an industry’s concentration ratio indicates the degree of competition in the industry. A concentration ratio that ranges from 0% to 50% may indicate that the industry is perfectly competitive and is considered a low concentration.

What is the HHI of pure monopoly?

The maximum level of concentration would be for a pure monopoly, which has an HHI score of 10,000 (1002). Typically, agencies which use the HHI consider a figure of between 1,500 and 2,500 to indicate a ‘moderately concentrated’ (as the example above) and when the HHI is above 2,500 the market is ‘highly concentrated’.

What does concentration ratios and the Herfindahl Index measures?

What do the CR and HHI indicate about the industry?

What is one difference between the four-firm concentration ratio and the Herfindahl index?

The four-firm concentration ratio measures the degree of concentration among all but four firms in an industry, whereas the Herfindahl index measures the degree of concentration among all firms in an industry.

What is CR4 and HHI?

Among the several indices proposed in the literature, the Herfindahl-Hirschman Index (HHI) and the Four-firm concentration ratio (CR4) are among the most established. However, the HHI requires the market shares of all market players to be known, while the CR4 requires just the top four.

What is CR4 ratio?

For example, the four-firm concentration ratio (CR4) refers to the market share of the four largest firms. The higher the concentration ratio, the more concentrated the industry. A market is generally considered highly concentrated if the CR4 is greater than 50 percent.

What is considered a high concentration ratio?

A high concentration ratio closer to 100% indicates the existence of a monopoly in an industry or lack of competition to such firms. A lower concentration ratio indicates higher competition among the firms in the industry.

How do you calculate the 4 firm concentration ratio?

What is a high CR4?

What does CR4 measure?

index. The CR4 index (the concentration ratio for the top 4 firms) has been the most. relevant index to measure concentration before the advent of the HHI [24]. It is. given by the sum of the market shares of the largest 4 firms in the market [2]

What is a high 4 firm concentration ratio?