Course: Antitrust Law
Since 1982, the U.S. Department of Justice, the Federal Trade Commission, and state attorneys general have used the Herfindahl-Hirschman Index (HHI) to measure market concentration for purposes of antitrust enforcement. The HHI of a market is calculated by summing the squares of the percentage market shares held by the respective firms. For example, an industry consisting of two firms with market shares of 70% and 30% has an HHI of 70²+30², or 5800.
According to the DOJ-FTC 2010 Horizontal Merger Guidelines, the agencies will regard a market in which the post-merger HHI is below 1500 as "unconcentrated," between 1500 and 2500 as "moderately concentrated," and above 2500 as "highly concentrated." A merger potentially raises "significant competitive concerns" if it produces an increase in the HHI of more than 100 points in a moderately concentrated market or between 100 and 200 points in a highly concentrated market. A merger is presumed "likely to enhance market power" if it produces an increase in the HHI of more than 200 points in a highly concentrated market.
The form below provides a convenient worksheet for the calculation of the HHI statistic under various scenarios that are commonly considered during the agencies' merger reviews. Up to 20 company names and sales figures may be entered, and any set of companies may be selected as parties to a proposed merger. Because market definition is a frequently contested fact in antitrust analysis, the form also provides the option to select any set of companies to exclude from the calculation.
-- Andrew Chin
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