Understanding the Herfindahl-Hirschman Index (HHI)
Contrax Manager
Last Update 7 days ago
In the Enhanced Revenue Analysis section of Contrax, available to the account owner, we use HHI as a way of showing account diversification.
Find each company’s market share (as a percentage of total sales or revenue).
Square each company’s market share (multiply the percentage by itself).
Add up all the squared values — this total is the HHI.
Example:
If a market has four companies with market shares of 30%, 30%, 20%, and 20%, the HHI would be:
30² + 30² + 20² + 20² = 900 + 900 + 400 + 400 = 2600
What HHI Scores Mean
Below 1,000: Competitive market — many companies, no single one dominates.
1,000 to 1,800: Moderately concentrated — a few larger players, but still competitive.
Above 1,800: Highly concentrated — a few firms dominate the market.
10,000: Monopoly — one company controls the entire market.
Why HHI Is Used
Antitrust decisions: Regulators use HHI to judge whether mergers or acquisitions would harm competition.
Market analysis: Helps businesses and economists understand how competitive an industry is.
Policy making: Informs decisions on competition laws and market regulations.
Key Points to Remember
HHI measures market concentration — how much control is held by top companies.
It takes into account both the number of companies and their market shares.
Higher HHI values mean more concentration and less competition.