Similar Questions for How Do You Calculate Hhi from Yahoo AnswersQuestionAnswer
HHI is the Herfindalh index and it is computed as sum of square sof market shares of firms.
I.e. take top 4 firms,
find their market shares
square each of them
add them up.
Why is the largest possible value of the Herfindahl-Hirschman Index (HHI) 10,000?Answer
A. An HHI of 10,000 corresponds to a monopoly--that is, a single firm with 100% market share.
B. An HHI of 10,000 corresponds to 100 firms with 1% market share each.
C. The Justice Department assigns a value of 10,000 to the most concentrated industry, and then calculates the HHI of other industries as a percentage.
D. If the HHI of an industry is greater than 10,000, the Justice Department automatically regulates it.
It's purely math based. Within an industry a firm is assigned a number that is one to one related to it's marke share. This number is squared for each firm and then all these numbers are summed together. Now consider a monopoly. It has 100% of the market so gets 100 assigned to it. The rest of the firms have 0% so are assigned 0. Squaring gives you 10,000 to the first firm while the rest get 0 each. Summing gives you 10,000.
Now say that one other firm gets x% of the market away from the monopoist. Then the HHI is
HHI = (100-x)^2 + x^2
= 10,000-200*x + x^2 + x^2
= 10,000-200*x + 2*x^2
Now x is a very small number. So when it's squared it's even smaller. Adding double a very small number is adding very little still. And taking away 200*x is subtracting a rather large number when compared to 2*x^2. So HHI falls.
From the design of the HHI then, only a monopoly can ever achieve 10000.
I need help with the Herfindahl Index?Answer
1 calculate the pre-merger H-index for all ten firms
2 calculate the post-merger H-index for the nine remaining firms to determine the impact of this merger industry's h-index
3 compare the results of the two calculations
Top ten firms selling cars and light trucks in the US in October 2008 and their market share :
Will give full points.
1. Square each firm's market share and add them all together.
(20)^2 + (18)^2 + (16)^2 ... (3)^2 + (3)^2 + (2)^2
2. Whatever two firms you're supposed to merge, do that, and repeat the calculation above. For example, if GM and Toyota merge, the calculation becomes:
(38)^2 + (16)^2 ... (3)^2 + (3)^2 + (2)^2
3. In the example above, GM merging with Toyota significantly decreases the amount of competition in the industry. By comparison, if Hyundai and Mazda merge, the HHI becomes 1293. While this is a decrease in competition, it is a very small decrease.