Notes (HHI & CR) Industry Concentration

Notes (HHI & CR) Industry Concentration - CR HHI Page 1...

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CR & HHI Page 1 of 2 Industry Concentration HHI and CR http://www.quickmba.com/econ/micro/indcon.shtml QuickMBA / Economics / Industry Concentration The concentration of firms in an industry is frequently discussed in business publications. It’s of interest to economists, business strategists, and government agencies. Here, we discuss two commonly-used methods of measuring industry concentration: the Herfindahl-Hirschman Index and Concentration Ratio. In large multi-division corporations the indexes can be applied to the various divisions. (In the business simulation of BUSN-499, use the industry market share percentages found on page 1 of the Capstone Courier Report) Herfindahl-Hirschman Index (HHI) The Herfindahl-Hirschman Index provides a more complete picture of industry concentration than does the concentration ratio. The HHI uses the market shares of all the firms in the industry, and these market shares are squared in the calculation to place more weight on the larger firms. If there are n firms in the industry, the HHI can be expressed as: HHI = s12 + s22 + s32 + ... ... + sn2 Calculations start with the market share percentage number of every company in an industry or market segment (Percentages must total 100%).
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