## What is the hirfindahl-hirschman index, Corporate Finance

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What is the Hirfindahl-Hirschman Index?

A:
The Hirfindahl-Hirschman Index, or HHI, is the standard measure used by economists to evaluate market concentration. The greater the level of concentration among competitors, the higher the HHI. The HHI runs on a scale from zero (representing extreme competitiveness) to 10,000 (representing monopoly). The HHI is determined by squaring (multiplying by itself) the market share of each firm in a market, and then adding up the results. The example below illustrates this calculation.

Example Calculation for a Hypothetical Market With HHI of 2,000

 Competitor Market Share % HHI Bank #1 29 841 Bank #2 24 576 Bank # 3 19 361 Bank # 4 10 100 Bank # 5 10 100 Bank # 6 4 16 Bank # 7 2 4 Bank # 8 1 1 Bank # 9 1 1 Total Market 100 2,000

(Hirfindahl-Hirschman Index Source: Federal Reserve)

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