**Similar Questions for How Do You Calculate Hhi from ***Yahoo Answers***Question****Answer**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.

**Question**Why is the largest possible value of the Herfindahl-Hirschman Index (HHI) 10,000?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.

**Answer**A.
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.

**Question**I need help with the Herfindahl Index?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 :
GM 20%
Toyota 18%
Ford 16%
Chrysler 11%
Honda 10%
Nissan 7%
BMW 3%
Volkswagen 3%
Hyundai 3%
Mazda 2%
Will give full points.

**Answer**1. Square each firm's market share and add them all together.
(20)^2 + (18)^2 + (16)^2 ... (3)^2 + (3)^2 + (2)^2
= 1281.
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
= 2001.
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.