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Calculation Using the Herfindahl-Hirschman Index

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The top 6 firms in an industry have the following market shares:

A 25

B 25

C 20

D 10

E 10

F 5

Firm C wants to buyout Firm F.
Will the Department of Justice likely approve this acquisition?
Calculate the Herfindahl-Hirschman Index (HHI), showing all work.

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Solution Preview

The Herfindahl-Hirschmann Index (HHI) can be computed based on the following formula:
HHI = (Market Share of Company 1)^2 + (Market Share of Company 2)^2 + ... + (Market Share of Company N)^2

The website of the Department of Justice (DOJ) states: "The agencies generally consider markets in which the HHI is between 1,500 and 2,500 points to be moderately concentrated, and consider markets in which the HHI is in excess of 2,500 points to be ...

Solution Summary

The expert calculates using the Herfindahl-Hirschman Index.