The Herfindahl–Hirschman Index and Anti-Trust

LafayetteBis · Feb 22, 2021

From here: Is Lack of Competition Strangling the U.S. Economy?

Quote:
The troubling effect of industry consolidation and other forces on productivity, wages, and income inequality ...

Summary:

There’s no question that most American industries have become more concentrated. Economists are trying to understand whether this is necessarily a bad thing for competition.

The short answer: It’s complicated. Innovation superstars like Google have created winner-take-most markets largely by exploiting network effects, not through predatory behavior. However, research from the wider economy (including the tech sector) uncovers classic signs of unhealthy concentration: rising profits, weak investment, and low business dynamism.

The government’s approach to antitrust violations is due for an overhaul. And regulators need to pay more attention to protecting economic vitality and consumer well-being — and less to industry lobbyists.
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Reference: Industrial Concentration

Summary:

Industrial concentration” refers to a structural characteristic of the business sector. It is the degree to which production in an industry—or in the economy as a whole—is dominated by a few large firms.

Once assumed to be a symptom of “market failure,” concentration is, for the most part, seen nowadays as an indicator of superior economic performance. In the early 1970s, Yale Brozen, a key contributor to the new thinking, called the profession’s about-face on this issue “a revolution in economics.” Industrial concentration remains a matter of public policy concern even so.

Industrial concentration was traditionally summarized by the concentration ratio, which simply adds the market shares of an industry’s four, eight, twenty, or fifty largest companies. In 1982, when new federal merger guidelines were issued, the Herfindahl-Hirschman Index (HHI) became the standard measure of industrial concentration ...
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Herfindahl–Hirschman Index - Wikipedia

The Herfindahl index (also known as Herfindahl–Hirschman Index, HHI, or sometimes HHI-score) is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. Named after economists Orris C. Herfindahl and Albert O. Hirschman, it is an economic concept widely applied in competition law, antitrust and also technology management. It is defined as the sum of the squares of the market shares of the firms within the industry (sometimes limited to the 50 largest firms), where the market shares are expressed as fractions ...

The United States federal anti-trust authorities such as the Department of Justice and the Federal Trade Commission use the Herfindahl index as a screening tool to determine whether a proposed merger is likely to raise antitrust concerns. Increases of over 0.01 generally provoke scrutiny, although this varies from case to case. The Antitrust Division of the Department of Justice considers Herfindahl indices between 0.15 and 0.25 to be "moderately concentrated" and indices above 0.25 to be "highly concentrated"
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The Herfindahl–Hirschman Index and Anti-Trust

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