Definition 1.
A commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. The HHI can range from a minimum of close to 0 to a maximum of 10,000. The HHI is expressed as: HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where sn is the market share of the ith firm). The U.S. Department of Justice uses the HHI for evaluating mergers. They consider a result of less than 1,000 to be a competitive marketplace, a result of 1,000 - 1,800 to be a moderately concentrated marketplace, and a result of 1,800 or greater to be a highly concentrated marketplace. As a general rule, mergers that increase the HHI by more than 100 points in concentrated markets raise antitrust concerns.
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