the Herfindahl-Hirschman Index (HHI). We calculate HHI by summing the squares of the market share of
each firm in the industry, as the following Work It Out shows.

WORK IT OUT

Calculating HHI
Step 1. Calculate the HHI for a monopoly with a market share of 100%. Because there is only one firm, it has
100% market share. The HHI is 1002 = 10,000.

Step 2. For an extremely competitive industry, with dozens or hundreds of extremely small competitors, the HHI

value might drop as low as 100 or even less. Calculate the HHI for an industry with 100 firms that each have 1%
of the market. In this case, the HHI is 100(12) = 100.

Step 3. Calculate the HHI for the industry in Table 11.1. In this case, the HHI is 162 + 102 + 82 + 7(62) + 8(32) =
744.
264 11 • Monopoly and Antitrust Policy

Step 4. Note that the HHI gives greater weight to large firms.

Step 5. Consider the earlier example, comparing one industry where five firms each have 20% of the market with
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