Last updated: July 2026
What is the Herfindahl-Hirschman Index (HHI)?
The Herfindahl-Hirschman Index (HHI) is a widely used measure of market concentration and industry competitiveness. It is commonly used by government regulators, such as the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC), to evaluate the potential impact of mergers and acquisitions on market competition. A higher HHI indicates a highly concentrated market, often moving toward a monopoly or oligopoly, while a lower HHI suggests a highly competitive, unconcentrated market.
How to Use the HHI Calculator
- Select your input method: Choose whether you want to enter the market share as a percentage (%) or the raw revenue/sales values for each firm.
- Add the firms: Enter the names and corresponding shares or revenues for the top firms in the industry. You can add more firms using the "Add Firm" button.
- View the results: The calculator will instantly calculate the total HHI score, total market share, and determine the concentration level of the market.
How We Calculate the HHI (The Formula)
The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers.
HHI = s₁² + s₂² + s₃² + ... + sₙ²
Where s is the market share of the respective firm expressed as a whole number (e.g., 40 for 40%), and n is the number of firms. The index can range from close to zero (perfect competition) to 10,000 (a pure monopoly).
HHI Calculation Example
Imagine an industry with four companies having the following market shares: 40%, 30%, 20%, and 10%.
- Step 1: Square each market share:
- Firm A: 40² = 1,600
- Firm B: 30² = 900
- Firm C: 20² = 400
- Firm D: 10² = 100 - Step 2: Add them together:
HHI = 1,600 + 900 + 400 + 100 = 3,000.
Since the HHI is 3,000 (which is greater than 2,500), this market is considered highly concentrated.
Market Concentration Thresholds
- Less than 1,500: Unconcentrated marketplace. It represents a highly competitive industry with many players.
- 1,500 to 2,500: Moderately concentrated marketplace.
- Greater than 2,500: Highly concentrated marketplace. Regulators often closely scrutinize mergers in these markets because they could significantly reduce competition.
Frequently Asked Questions (FAQ)
What is the Herfindahl-Hirschman Index (HHI)?
The Herfindahl-Hirschman Index (HHI) is a common measure of market concentration used to determine market competitiveness. It is calculated by squaring the market share of each firm in a market and summing those squares.
How is the HHI calculated?
The HHI is calculated by squaring the market share percentage of each firm competing in a market and then adding the resulting numbers together. The formula is: HHI = s₁² + s₂² + s₃² + ... + sₙ², where s is the market share of the respective firm.
What is considered a highly concentrated market?
According to regulatory guidelines (such as the U.S. DOJ and FTC), an HHI score of less than 1,500 indicates an unconcentrated market, an HHI between 1,500 and 2,500 indicates moderate concentration, and an HHI above 2,500 indicates a highly concentrated market.
What is the maximum possible HHI score?
The maximum possible HHI score is 10,000. This occurs in a pure monopoly where a single firm has 100% market share (100² = 10,000).