The Herfindahl-Hirschman Index (HHI) is the standard measure of market concentration used by antitrust authorities to screen mergers. It is calculated as the sum of the squared market shares of all firms in a relevant market. By squaring shares, the HHI gives disproportionate weight to larger firms, capturing not just how many competitors exist but how unequal they are.
How it is calculated
HHI = Σ (each firm's percentage market share)²
A few illustrations within a defined market:
- A monopoly (one firm at 100%): 100² = 10,000 (the maximum).
- Four firms at 25% each: 25² × 4 = 2,500.
- Ten firms at 10% each: 10² × 10 = 1,000.
- A market with many tiny firms approaches 0 (perfect competition).
So the HHI ranges from near 0 (atomistic) to 10,000 (pure monopoly).
How regulators use it
In a merger, what matters is both the post-merger HHI level and the change (delta) caused by the deal — the increase equals roughly twice the product of the two merging firms' shares. The 2023 U.S. Merger Guidelines treat a market as highly concentrated above an HHI of 1,800, and a merger is presumed to substantially lessen competition if it produces a highly concentrated market and raises the HHI by more than 100 points (the Guidelines also flag deals giving the merged firm a share above 30% combined with a meaningful delta). (Earlier 2010 Guidelines used 1,500 / 2,500 thresholds; the EU uses its own broadly similar safe-harbor levels.)
Crossing these thresholds creates a presumption of harm that the merging parties must rebut — making the HHI a key screening device that channels which deals get scrutinized or challenged.
Strengths and limits
The HHI is valued for being simple, transparent and reproducible, giving a quick read on concentration. But it is only a screen, not a verdict:
- It is entirely dependent on market definition — drawing the market narrowly or broadly swings the HHI dramatically, which is why market definition is so fiercely contested.
- It captures structure, not behavior — a concentrated market can still be competitive (and vice versa), so regulators supplement the HHI with direct evidence of competitive effects, entry conditions and efficiencies.
- It assumes shares are meaningful proxies for competitive significance, which can mislead in differentiated-product or fast-moving markets.
For these reasons the HHI is the starting point of concentration analysis under merger control, not the end of it.
See also
- Market definition — The threshold step in any antitrust merger analysis: identifying the relevant product and geographic market in which the parties compete, against which concentration is then measured.
- Antitrust and merger control — Government review of mergers to prevent harm to competition.
- FTC merger review — Competition review of a transaction by the U.S. Federal Trade Commission, sharing jurisdiction with the DOJ Antitrust Division for HSR-reportable deals.
- DOJ Antitrust Division review — Competition review by the U.S. Department of Justice Antitrust Division. Allocation between DOJ and FTC depends on the industries involved.
- EU Merger Regulation — Council Regulation (EC) No 139/2004, which gives the European Commission jurisdiction over mergers with an EU dimension. Deals above turnover thresholds are reviewed at EU level rather than by member states.