Problem

Why can it be difficult to decide what a “market”…

01:30

Problem 14 Medium Difficulty

How do we measure a Herfindahl-Hirshman Index? What does a low measure mean about the extent of
competition?

Answer

Antitrust laws are the laws and regulations that are imposed by government or authorities to
ensure the increased competitiveness in the market. It also helps observe and control mergers
and acquisition taking place between big or key firms.
Herfindan-Hirschman index HHI is one of the measures of market share of dominant firms in an
industry. HHI is calculated by squaring the market share of top firms and then adding them
together. So, if there is only one firm with hundred percent market share then highest HHI value
possible is $10,000$ . So, higher the value of HHl, lower is the level of competitiveness in the
industry.

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Principles of Microeconomics for AP® Courses

Chapter 11

Monopoly and Antitrust Policy

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Video Transcript

have you done today? We're solving problem number 40 which asks us, um, about the h h i, which is the her friend. All Hershman Index. Um, it asks us, apologized by Miss Pronounce that name. Um, but essentially, it asks us to, uh, show how you measure this index. And then what does a low number on the index indicate about the competition in the market? So the generic formula for the perfect doll Hershman index again, I'm sorry. From mispronouncing back, um is it's going to be adding the squares of the market shares of each firm in the industry. So what that looks like is I would have a share, like we'll call That s one one of the market shares Lineup square that when I be adding a second chair in the same industry again swear that at 1/3 1 and so on and so forth members wearing each number so generically, what I can do is I can just say it's plus seven, so whatever that shared number is in the market for that particular industry and square. So that's basically how you calculate it. Remember, it's adding this square off the market shares of each burn, and then what does a low number? So if I have a low number on the index in terms of competition, it means it's gonna be closer. Not actually to Monopoly, which have zero competition. As you might think, it's actually closer competition with Manning any firms all competing. So what we can say is the lower the number on the perfect doll Hershman again and really sorry from this renouncing that. But the closer the number on the H H I indexes to zero um, weaken just generalize when its lower there's gonna be higher competition. And I think that's right, that it would be closer to perfect competition. Pervert competition on the scale itself is Euro, and I believe 10,000 is the mark or one of monopoly. It's so you you can get a you got a sense of like where competition would lie. So obviously, if we have a high number on the h h I, that is indicative of the fact that it's closer and closer to monopoly. So there you have it. If you guys enjoy this with your explanation, he said, the light. But next to it, I hope you all have a nice day. And thank you for watching

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