Market Share Data

Firm Name
Total: 100.0%
HHI Formula
HHI = s12 + s22 + ... + sn2
Where si = market share of firm i (as %)
Ryan O'Connell, CFA
Calculator by Ryan O'Connell, CFA

Concentration Results

Herfindahl-Hirschman Index 2,288 Highly Concentrated Higher concentration; may warrant further analysis
CR4 85.0%
CR8 100.0%
Effective Firms 4.37

Formula Breakdown

Model Assumptions
  • Each row should represent one firm; do not combine multiple firms into an "Other" row (grouping overstates HHI)
  • Shares measured at a single point in time
  • Does not capture barriers to entry or demand elasticity
  • HHI thresholds are screening tools, not legal conclusions
  • 2023 DOJ/FTC thresholds: <1,000 unconcentrated, 1,000-1,800 moderate, >1,800 highly concentrated

Understanding Market Concentration

What is the HHI?

The Herfindahl-Hirschman Index (HHI) measures market concentration by summing the squared market shares of all firms. The squaring gives more weight to larger firms, making it sensitive to inequality in market share distribution.

HHI ranges from near 0 (perfect competition with many small firms) to 10,000 (monopoly with one firm controlling 100%). An HHI of 2,500 is equivalent to having four firms with equal 25% market shares.

DOJ/FTC Merger Guidelines

The 2023 U.S. Department of Justice and FTC Merger Guidelines use HHI as a screening tool:

  • HHI < 1,000: Unconcentrated market
  • 1,000 - 1,800: Moderately concentrated
  • HHI > 1,800: Highly concentrated

A merger creates a structural presumption if post-merger HHI exceeds 1,800 and the change exceeds 100 points.

HHI vs. Concentration Ratios

CR4 and CR8 simply add the shares of the top 4 or 8 firms. They're easy to calculate but insensitive to the distribution among top firms.

HHI captures inequality: two markets with identical CR4 values can have very different HHI values if one has a dominant leader versus four similar-sized firms.

Effective Number of Firms

The effective number of firms equals 10,000 divided by HHI. It tells you how many equal-sized firms would produce the same HHI.

For example, HHI of 2,500 = 4 effective firms (as if four 25% firms). This metric helps compare markets with different numbers of actual competitors.

Frequently Asked Questions

An HHI of 10,000 indicates a pure monopoly - one firm controls 100% of the market (1002 = 10,000). In practice, markets rarely reach this extreme, but HHI values above 2,500 suggest a market dominated by just a few firms. An HHI of 2,500 is equivalent to four equal-sized firms, each with 25% market share.

CR4 (concentration ratio) simply adds the market shares of the four largest firms. HHI sums the squared market shares of all firms. This difference means HHI is more sensitive to inequality among firms. Two markets with identical CR4 values can have very different HHI values if the distribution of shares differs - for instance, one market with a dominant leader versus another with four similarly-sized firms.

Squaring market shares gives more weight to larger firms, reflecting the intuition that a market with one dominant player is more concentrated than a market with many similarly-sized competitors - even if total market share among top firms is identical. Mathematically, squaring also ensures that a merger between two firms increases HHI by exactly 2 × a × b, where a and b are the merging firms' shares.

Under the 2023 DOJ/FTC Merger Guidelines, a merger creates a structural presumption of competitive harm if the post-merger HHI exceeds 1,800 and the merger increases HHI by more than 100 points. A separate presumption applies when the merged firm's market share exceeds 30% with an HHI change over 100. Note that these are screening thresholds, not automatic prohibitions - agencies consider many factors beyond HHI.

No. High concentration indicates market structure, not pricing outcomes. A highly concentrated market may still be competitive if barriers to entry are low (potential entrants discipline pricing), demand is elastic (customers are price-sensitive), or firms compete aggressively despite few players. Conversely, a moderately concentrated market with high barriers to entry may exhibit significant pricing power.

Investors use HHI to assess industry competitive dynamics, potential for margin stability, and regulatory risk from M&A activity. A high HHI may signal potential pricing power and margin durability - but also heightened regulatory scrutiny for acquisitions. A low HHI suggests intense competition but also more opportunity for consolidation. Combine HHI analysis with barriers to entry, customer switching costs, and strategic positioning for a complete competitive picture.

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Sources

U.S. Department of Justice & Federal Trade Commission. (2023). Merger Guidelines. justice.gov/atr/merger-guidelines

Disclaimer

This calculator is for educational and informational purposes only and does not constitute investment advice or legal advice. HHI thresholds and regulatory guidelines may change over time. Market concentration measures are analytical tools, not predictions of competitive outcomes or firm profitability. Always conduct your own research and consult qualified professionals before making investment or legal decisions.

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