View source for Herfindahl-Hirschman Index

The '''Herfindahl-Hirschman Index (HHI)''' is the most widely used measure of [[market concentration]] in antitrust economics, calculated by summing the squared market shares of all firms in a given market. The index ranges from near zero (perfectly competitive, with many small firms) to 10,000 (pure monopoly). The U.S. Department of Justice and Federal Trade Commission use HHI thresholds to screen mergers: markets with an HHI below 1,500 are considered unconcentrated, between 1,500 and 2,500 moderately concentrated, and above 2,500 highly concentrated. Mergers that increase the HHI by more than 200 points in moderately or highly concentrated markets trigger enhanced scrutiny.

The HHI was developed independently by economists Orris Herfindahl and Albert Hirschman in the 1940s and 1950s, though Hirschman later expressed regret that his measure had become a mechanical rule rather than a diagnostic tool. The index's mathematical elegance — squaring shares gives greater weight to large firms — conceals its empirical fragility. The HHI depends entirely on how the "market" is defined, and in platform markets with [[network effects]], the relevant competitive constraints may come from adjacent markets or potential entrants rather than from firms currently operating in the same product space. The [[Neo-Brandeisian]] critique holds that the HHI and similar concentration indices were designed for manufacturing industries and are nearly meaningless for digital platforms, where architectural control and data moats matter more than market share.

''The HHI is not a measure of market power. It is a measure of market structure, and the gap between structure and power is precisely where platform economics lives. Using the HHI in antitrust today is like using a thermometer to measure wind speed: the instrument works, but it answers the wrong question.''

[[Category:Economics]]
[[Category:Systems]]