The Herfindahl-Hirschman Index (HHI) is one of the most common ways to measure market concentration. Use the calculator below to estimate industry concentration, compare scenarios, and quickly evaluate whether a merger may materially increase concentration.
HHI Calculator
Enter each firm’s market share as a percentage (for example, 23.5). You can add or remove firm rows as needed.
Optional Merger Impact
If two firms merge, the increase in HHI is approximately: ΔHHI = 2 × s1 × s2 (using percentage shares).
What Is the Herfindahl-Hirschman Index?
The Herfindahl-Hirschman Index is a concentration metric used in economics, antitrust analysis, and corporate strategy. It summarizes how market share is distributed across competing firms. The index rises when a market is dominated by a few large players and falls when market share is spread across many firms.
Regulators, consultants, investors, and operators often use HHI as a first-pass screen to answer questions like:
- Is this market fragmented or concentrated?
- Would a merger significantly increase concentration?
- How does this industry compare with peers over time?
HHI Formula
The formula is straightforward:
HHI = s12 + s22 + ... + sn2
where each s is a firm’s market share in percentage points. If you use percentages, HHI ranges from near 0 to 10,000:
- 10,000 means a pure monopoly (100% share).
- Lower values indicate more competition and less concentration.
Quick Example
Suppose four firms have shares of 40%, 30%, 20%, and 10%:
HHI = 40² + 30² + 20² + 10² = 1600 + 900 + 400 + 100 = 3000.
How to Use This Calculator
- Enter each firm’s market share in its own row.
- Click + Add Firm if you need more rows.
- Leave rows blank if not needed.
- Keep normalization checked if your values do not sum exactly to 100%.
- Optionally enter two firm shares to estimate merger impact (ΔHHI and post-merger HHI).
The tool also reports the “effective number of equal-sized firms,” calculated as 10,000 / HHI. This can help you interpret concentration intuitively.
How to Interpret HHI Results
A common rule-of-thumb framework is:
- Below 1,500: unconcentrated
- 1,500 to 2,500: moderately concentrated
- Above 2,500: highly concentrated
Thresholds can vary by jurisdiction, year, and policy guidance, so always pair HHI with current legal standards and market-specific context.
Why HHI Is Useful (and Where It Can Mislead)
Strengths
- Simple to compute and explain.
- Sensitive to large firms because shares are squared.
- Widely accepted in antitrust and strategy work.
Limitations
- Depends heavily on how the market is defined.
- Ignores potential entry, innovation, and switching costs.
- Two markets with same HHI can still behave very differently.
Common Mistakes to Avoid
- Mixing decimals and percentages (0.25 vs 25).
- Using revenue share in one case and unit share in another without noting the difference.
- Forgetting small competitors, which can overstate concentration.
- Treating HHI as a final decision metric rather than an initial screen.
FAQ
Do shares need to sum to exactly 100%?
Ideally yes, but in real data there are often rounding or coverage issues. This calculator can normalize your values to 100% automatically.
Can I use HHI for non-financial applications?
Yes. HHI can measure concentration in any distribution: suppliers, customer base, portfolio exposure, product mix, and more.
What does a large increase in HHI mean after a merger?
It indicates increased concentration. Larger changes tend to draw more scrutiny, especially in already concentrated markets.