The formula to calculate HHI is:
\[ \text{HHI} = \sum_{i=1}^{N} (S_i)^2 \]
Where \(S_i\) is the market share of company \(i\), expressed as a percentage.
The Herfindahl-Hirschman Index (HHI) is a measure of market concentration and is used to determine the level of competition within an industry. It is calculated by summing the squares of the market shares of all the firms in the industry. A higher HHI indicates a more concentrated and less competitive market.
Let's consider an industry with the following market shares:
To calculate the HHI:
\[ \text{HHI} = 35^2 + 22^2 + 20^2 + 10^2 + 8^2 + 3^2 + 2^2 = 2286 \]
This means that the industry is moderately concentrated.