The Herfindahl-Hirschman Index

The Herfindahl-Hirschman Index (HHI) is a way to measure how competitive a market is by looking at the size of the companies within it. It adds up the squares of each company's market share percentage. A lower HHI indicates a more competitive market with many small players, while a higher HHI suggests fewer dominant companies, indicating less competition. For example, an HHI close to zero means a very competitive market, and an HHI near 10,000 means a monopoly where one company controls the entire market. The index helps regulators assess potential market power and concentration.