HHI Calculator (Herfindahl-Hirschman Index)
Print Report| Market Competition Status | Moderately Concentrated |
| DOJ/FTC Antitrust Threshold | 1,500 - 2,500 Range |
In economics and corporate law, understanding how competitive a specific market is requires more than just looking at the top company. You must evaluate the entire landscape to determine if the market is a healthy, competitive environment, or an oligopoly dominated by a few massive players.
Our free HHI Calculator allows financial analysts, economists, and legal teams to instantly calculate the Herfindahl-Hirschman Index. This index is the globally accepted standard for measuring market concentration and is actively used by government agencies to evaluate proposed corporate mergers for antitrust violations.
How to Calculate the Herfindahl-Hirschman Index (HHI)
The HHI formula is calculated by squaring the market share of each competing firm in the market, and then summing those squared numbers together. By squaring the market shares, the index places a much heavier weight on companies with larger market shares.
The HHI Formula:
HHI = s²₁ + s²₂ + s²₃ + ... + s²ₙ
(Where “s” is the percentage market share of each individual firm, expressed as a whole number, not a decimal).
Step-by-Step Example Calculation
Imagine a local telecommunications market is controlled by exactly four companies. You want to calculate the market’s HHI to see how concentrated the power is.
- Firm A: 40% market share
- Firm B: 30% market share
- Firm C: 20% market share
- Firm D: 10% market share
To calculate the HHI, we square each share and add them together:
HHI = (40²) + (30²) + (20²) + (10²)
HHI = 1600 + 900 + 400 + 100
HHI = 3,000
The Herfindahl-Hirschman Index for this specific telecom market is 3,000. (Read the benchmarks below to see what this score means).
HHI Thresholds: How the DOJ Evaluates Mergers
In the United States, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) use specific HHI thresholds to determine if a proposed merger between two companies will illegally harm market competition.
| HHI Score | Market Classification | DOJ Merger Stance |
|---|---|---|
| Below 1,500 | Unconcentrated Market (Highly competitive) | Mergers in this range rarely raise any antitrust concerns and are typically approved without issue. |
| 1,500 to 2,500 | Moderately Concentrated | Mergers that increase the HHI by more than 100 points in this range often warrant intense regulatory scrutiny. |
| Above 2,500 | Highly Concentrated (Oligopoly / Monopoly risk) | Mergers that increase the HHI by more than 200 points in this range are presumed to enhance market power and will likely be blocked. |
*Note: In our previous example, the telecom market had an HHI of 3,000, classifying it as a “Highly Concentrated” market.
Frequently Asked Questions (FAQ)
What is the maximum possible HHI score?
The absolute maximum HHI score is 10,000. This occurs only in a pure monopoly, where a single firm controls 100% of the market share (100² = 10,000). A score of 10,000 represents a complete lack of market competition.
What is the lowest possible HHI score?
The HHI approaches zero when a market is perfectly competitive, consisting of thousands of tiny firms each holding a fraction of a percent of market share. Because squaring a tiny fraction results in an even smaller number, highly fragmented markets score very low.
Why is HHI better than the Concentration Ratio (CR4)?
Older metrics like the Four-Firm Concentration Ratio (CR4) simply add the market shares of the top four firms together. The CR4 fails to capture the disparity between those top firms. Because the HHI squares the market shares, it accurately penalizes markets where a single dominant firm has a massively disproportionate share compared to its peers.