A country with trade export or import that is concentrated in a very few markets will have an index value close to 1. Concentration ratios gauge the scope of the market that a particular number of companies possess, specifically the top two four or eight companies. It is often used to evaluate potential mergers for antitrust concerns. The herfindahlhirschman index and occupational concentration. The minimum index value is of course close to zero assuming a perfect competitive market. Sun yatsen university, china statistical software components from boston college department of economics. Herfindahlhirschman index level of concentration values modification and analysis of their change.
Stata module to compute herfindahl index, statistical software components s457512, boston college. Government and industry analysts evaluate the level of competition in an industry using the herfindahl index. A hirschmann index can also be calculated using import or trade shares. The study selects a sample of 250 randomly selected firms whose common shares were traded on tehran stock exchange. The herfindahl index also known as herfindahlhirschman index, hhi, or sometimes hhiscore is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. Feb 11, 2020 the herfindahl hirschman index hhi is a commonly accepted measure of market concentration. Development of competition indicators in the norwegian general practice.
Herfindahlhirschman index hhi definition investopedia. Dear statalist, i have the following hypothetical trade dataset which contains imported items by importer. Stata module to generate herfindahlhirschman index hhi variables. Correlation and concordance between the cr 4 index and the. If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. How to calculate the herfindahlhirschman index bizfluent. Herfindahl hirschmann index calculation with 2 variables statalist. The value of the index is the sum of the squares of the market shares of all firms in an industry.
The purpose of this text is to describe a procedure that can be used to construct a herfindahl hirschman index of market. Herfindahl index i am trying to calculate degree of concentration in an industry by using the herfindahl index. This video shows how to calculate the hhi using several examples. An index that identifies the level of competition in a given market and helps the u. A new package hhi for quick calculation of herfindahl. It is often used in econometrics to measure the market share of companies subgroup in relation to an industry group. For example, in 2018, anheuserbusch inbev held about 41% of the u.
A concentration measure taking the consumers point of view show all authors. Lian yujun additional contact information lian yujun. Hhindex a new stata command for market concentration indexes orietta dessy university of milan t focus on cardinal market concentration indexes. Herfindahl hirschman and entropy t develop a stata command for markets whose composition can vary over time t application to italian newspapers markets at provincial level. For your information, there is another concentration measure called the lerner index, although the lerner index is a snapshot of the intensity of competition. Herfindahlhirschman index definition, formula how to. Dynamics of the hirschman herfindahl index under new market entries. The herfindahl index also known as herfindahl hirschman index, hhi, or sometimes hhiscore is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. Why should i use hhi the herfindahl hirschman index hhi is a widely used measure of concentration in a variety of fields including, business, economics, political science. The degree of concentration is defined as the market share percentage of the market controlled by each firm involved in a given market.
The hirschmann index is sometimes called the hirschmann herfindahl index hhi, and is used in other contexts see the sectoral version later in this volume. The herfindahl hirschman index hhi is a commonly accepted measure of market concentration. Stata module to generate herfindahlhirschman index. It is calculated by squaring the market share of each firm competing in a market and then summing the. In the simulation below, there are ten firms named a through j. Herfindahl hirschman index or hhi score refers to a measure of market concentration and is an indicator of the amount of competition in a particular industry. The hhi is calculated by squaring the market share of each firm in the industry and summing the result. Pdf dynamics of the hirschmanherfindahl index under new. This statistic shows the herfindahl index hi for credit institutions in the benelux countries belgium, luxembourg and the netherlands from 20 to 2018. The herfindahl hirschman index hhi can be used to provide a measure of occupational concentration by industry. How to calculate the herfindahlhirschman index hhi.
Businesszeal will tell you how to calculate the herfindahlhirschman index hhi. In order to examine if the latter can be taken as a proxy for the former, we perform a correlation analysis employing the pearson, spearman, and kendall correlation coefficient, and introduce a new metric, the probability of order preservation, that. Product concentration and diversification indices of exports and imports, annual. Feb 19, 2020 the herfindahl hirschman index hhi for manufacturing industries only. Herfindahlhirschman index calculation in eviews post by emelia67 wed apr 02, 2014 11. Could any one tell me how can i implement the herfindahl index in stata in this. This study performs an analysis of the concentration or diversification of the export structure of the andean community member countries, for which the calculation of the herfindahl hirschmann index hhi covering the period 20002015 was used as methodology. The herfindahlhirschman index is a measure of the size of subgroups in relation to its containing group. For simplicity, it can be interpreted as a measure of competition or concentration. By country bycountry, hh market concentration index indicators data for years 1988 to 2018. The herfindahl hirschman index of the automobile industry in the u.
Oecd glossary of statistical terms herfindahl index definition. Since reconductoring has affected many 150 kv lines on which wind farms are connected, an analysis of the zonal price of electricity in sicily in last years will be carried out to demonstrate how this structural intervention, together with others 8, has allowed better integration of res and therefore a decrease in zonal prices and in hhi index herfindahl hirschman index. And if i use the command from stata helpfunction in the existing format, stata produces a new hhivariable for every var 1 to var20. Herfindahl hirschmann index calculation with 2 variables. Hirschman herfindahl index is a measure of the dispersion of trade value across an exporters partners. Actually, i didnt find any helping hints if i can use this long format or if i have to reshape it to the wide format. Constructing a postal codespecific herfindahl hirschman index applying stata software. Regulation is most likely to occur in a market with a herfindahl hirschman index hhi of a. Nov 21, 2018 government and industry analysts evaluate the level of competition in an industry using the herfindahl index. Herfindahlhirschman and entropy t develop a stata command for. The concentration of market power is typically measured by the hirschman herfindahl index hhi. Herfindahlhirschman index level of concentration values.
Concentration ratios and the herfindahlhirshman index. To understand what i am talking about, i have attached a table. Stata module to generate herfindahlhirschman index hhi. Institute of health and society, department of health management.
The paper is given over to a sensitivity analysis of. Hhi index formula helps in analyzing and observing, if a particular industry is highly concentrated or close to. Stata module to compute herfindahl index semantic scholar. What id like to compute is hhi herfindahl index for every company id in each year. Herfindahlhirschman index financial definition of herfindahl. The module supports multiple variables and group ids and allows user to export output in table format csv comma delimited. Department of justice, the federal trade commission, and state attorneys general have used the herfindahl hirschman index hhi to measure market concentration for purposes of antitrust enforcement. A critique of the herfindahl hirschman index s use to evaluate mergers in network industries. Stata module to compute herfindahl index muhammad ansari.
Herfindahlhirschman index how is herfindahlhirschman. In financial risk applications, concentration is the opposite of diversification. Development of competition indicators in the norwegian. The herfindahl hirschman index hhi is a widely used measure of market concentration. Herfindahlhirschman and entropy t develop a stata command for markets. A critique of the herfindahlhirschman indexs use to evaluate mergers in network industries. Orris clemens herfindahl june 15, 1918 in parshall, north dakota december 16, 1972 while traveling in nepal was an economist who studied natural resources. Sep, 2019 a companys market share is its percentage of total sales within a market or industry. To find whether it is available, there are three options. Why should i use hhi the herfindahl hirschman index hhi is a widely used measure of concentration in a variety of fields including, business, economics, political science, finance, and others. To our knowledge, this item is not available for download. Mar 20, 2016 it is calculated by summing the square of individual firms market share. The herfindahlhirschman index hhi is a common measure of market concentration that is used to determine market competitiveness. This is a mathematical formula used to assess the concentration of firms in a particular industry or market.
What is the difference between herfindahl index and the. However, he is mainly known as the inventor of a concentration index the herfindahl index which he proposed in his 1950 doctoral dissertation on the steel industry while at columbia university. Some occupations are found in nearly every industry in the united states, while others are specific to one or only a few industries. This module should be installed from within stata by typing ssc install hhi. Herfindahl hirschman index hhi, also called hh index, in economics and finance, a measure of the competitiveness of an industry in terms of the market concentration of its participants. If all or most of your risk is in one area, it is concentrated.
This topic looks at two measures of market concentration namely the concentration ratio and the herfindahl hirschman index hhi. Herfindahl index of fractionalization disambiguation page needed. The study uses herfindahl hirschman index hhi to measure the market concentration and uses historical information over the period 2008. Hi i need to calcualte whats called a herfindahl index. It allows user to generate new hhi variables for large data panels and export output in table format. I am using the panel data where i have 10 years of time, 50 states, in. Hirschman, it is an economic concept widely applied in competition law, antitrust and also technology management.
Interval estimation of the herfindahlhirschman index under. Department of justice evaluate whether a merger might create a nearmonopoly. The herfindahl hirschman index hhi and the fourfirm concentration ratio cr 4 are the leading indicators for market concentration. Hhi panel in long format statalist the stata forum. As part of this, i would like to calculate the herfindahl hirschman index for the following scenario. The herfindahl index, also known as herfindahl hirschman index or hhi, is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. In this paper we show that hhi treats all sectors as equally risky and propose an alternative index ci in which sectors are weighted according to risk.
I am using the panel data where i have 10 years of time, 50. This will allow me to get the herfindahl hirschman index by importer for each item. Higher concentration is interpreted as a risk, although for someone with a high tolerance for risk and who wants higher returns, that person might prefer concentration. Windows users should not attempt to download these files with a web browser. To calculate the market concentration in tikis large metropolitan city, she will need to use the herfindahl index or hi, also known as the herfindahl hirchman index or hhi. The hhi is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers.
Say there are 4 firms with market share of 10%, 20% 30% and 40% then hhi 0. This meaures how concentrated the ownership of a company is. The herfindahl hirschman not hirschmann measure is named for simpson the same simpson as is honoured with the name simpsons paradox in that program output, partly to remind economists that they didnt invent everything and partly because it was invented by gini. On the basis of european union commission guidelines and hhi values, the given industry can be characterized as unconcentrated, moderately concentrated or concentrated.
The herfindahl hirschman index hhi is a measure of the competition between firms and related industries. The cr4 index and the interval estimation of the herfindahl. Jul 31, 2018 the term hhi means the herfindahlhirschman index, a commonly accepted measure of market concentration. In spain, the spanish central bank bases its surcharge proposal for sectorial concentration on the herfindahl hirschman index hhi. The hhi of a market is calculated by summing the squares of the percentage market shares held by the respective firms. To calculate the hhi for a proposed merger using the herfindahl hirschman index formula, add the squares of each companys market share. Apr 27, 2014 the herfindahlhirschman index hhi that measures the level of concentration in a given industry is a wellknown and commonly accepted one indicator of market competition. The herfindahl hirschman index and occupational concentration by industry. The cr4 index and the interval estimation of the herfindahlhirschman index. Obtaining correct inference from within strata att estimation with psmatch2next by date. The cr 4 index and the interval estimation of the her. Why do we square the market shares in the herfindahl index. In this regard, there are two significant types of concentration ratios that are utilized at present. Though simple to calculate summed squared market shares of firmsactors in a single marketspace, calculation of the hhi can get onerous, especially as the number of firmsactors increases and the.
Stata module to compute herfindahl index ideasrepec. The purpose of this text is to describe a procedure that can be used to construct a herfindahl hirschman index of market concentration based on the following two pieces of information. The table automatically sorts and ranks the firms by size and calculates the herfindahl hirschman index of concentration for the market. Brown, assistant professor of strategic management at penn state university harrisburg, explains how to calculate a herfindahl index. For example, suppose i have a firm with 10 shareholders, each holding the following percentage the total usually adds up to less than 100% as some are missing. Simply select your manager software from the list below and click on download. The differences in these index values explain a lot about the industry and are often used to estimate the division of wealth between firms. Similarly, a country with a perfectly diversified trade portfolio will have an index close to zero. Hhi can be used to quantify market concentration which helps close in.
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