The Herfindahl-Hirschman index is measured by
A) adding the market shares of all firms in an industry.
B) adding the squares of the market shares of all firms in an industry.
C) squaring the sum of the market shares of the all firms in an industry.
D) adding the market shares of the four largest firms in an industry.

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman index (HHI) is a measure of market concentration. It is calculated by squaring the market share of each firm in an industry and then summing them up. This gives more weight to larger firms and provides a better indication of the level of competition in the market. Therefore, the correct answer is option B.

The Herfindahl-Hirschman Index Is Measured by