Blog #2

The Herfindahl Index (HHI) is a measure of the size of firms in relation to their industry. It also indicates the amount of competition between the firms inside their industry.

The index ranges from 0 to 10,000. The lower the rating, the more highly competitive firms are in the market and vice-versa, therefore a score of 10,000 would indicate a monopoly. (bizterms) An industry with a score over 2,000 is considered to have very low competition with very few firms controlling most of the market share, while one below 1,000 is considered to be highly competitive with many small firms.

1. This statistic would be useful for new firms or firms looking to enter a new market because it would give them an accurate measure of the competition in the market. It would also be useful for firms looking to view the level of competition of the industry they are in. (Chin, Andrew)

2. This statistic is collected by adding the squares of the market shares of the top 50 firms in an industry (or all of the firms if there are less than 50) and the result will be a number from 0 to 10,000 as stated before.

3. The HHI for the breakfast cereal manufacturing is 2,521.3, meaning very few firms control most of the market share. (US Economic Census)

References

- Bizterms.net. Retrieved 1/11/11 http://www.bizterms.net/term/Herfindahl-index.html

- Chin, Andrew. UNC School of Law. Revised December 2010. Retrieved 1/11/11 http://www.unclaw.com/chin/teaching/antitrust/herfindahl.htm

- US Economic Census Bureau. Concentration ratios for 2002. Manufacturing. Subject series. US Department of Commerce. Economics and Statistics Administration. Economic Census 2002. Retrieved 1/12/11. http://www.census.gov/prod/ec02/ec0231sr1.pdf