Herfindahl

Part of speech: noun

Definitions

1. A measure used to quantify market concentration by summing the squares of individual firms' market shares, often applied in economics to assess competition and industry dominance
2. An index calculating the sum of the squared proportions of market shares held by all participants in a market, utilized to indicate the level of competition or monopoly presence
3. A statistical metric evaluating how concentrated a market is by aggregating the squared market shares of each firm, helping to understand the degree of competitive balance within an industry

Etymology: Herfindahl is a surname, and the index is named after two American economists, Orris Herfindahl and Albert Hirschman, who each developed the measure independently in the 1940s and 1950s. Hirschman's version is sometimes called the Herfindahl-Hirschman index, and the name is attached to people rather than to any word-formation. The "Herfindahl" half comes from Orris Clemens Herfindahl, an American economist whose work on the concentration of steel production appeared in his 1950 dissertation at Columbia University. The index itself is a plain calculation: square each firm's market share and add the results. Because squaring makes large shares count far more than small ones, a market dominated by one firm scores close to the maximum, while a market of many small firms scores near zero. Regulators in the United States and elsewhere have used it to judge whether mergers would dangerously concentrate a market.

Synonyms: herfindahl index, herfindahl–hirschman index, HHI