Herfindahl-Hirschman index: a standalone construct

Albert O. Hirschman first proposed this index in his 1945 book National Power and the Structure of Foreign Trade to gauge how concentrated a country's trade was among its partners, and Orris C. Herfindahl independently derived the same statistic in his 1950 Columbia doctoral dissertation on the United States steel industry, so in a 1964 note Hirschman set out the shared history of the measure that now carries both names. The index is computed as the sum of the squared market shares of all the firms competing in a market, so a market split evenly among many small firms produces a low number while a market dominated by a single firm approaches the maximum. Because squaring gives disproportionate weight to the largest firms, a single figure captures both how many competitors there are and how unequal their sizes are, and this is the concentration measure written into the United States Department of Justice and Federal Trade Commission merger guidelines used to screen proposed mergers for likely harm to competition.[1][2][3]

Unit

A concentration index equal to the sum of squared market shares; near 0 when a market is split among many tiny firms, and up to 10,000 when shares are stated as whole-number percentages and one firm holds the whole market

Recovery means

Not applicable

Measured by

Calculated as the sum of the squared market shares of every firm in a defined market; United States antitrust agencies state each share as a whole-number percentage, so the index runs from near 0 to 10,000