Herfindahl-Hirschman Index meaning

A tool used in merger control to describe how concentrated a market is and how a transaction would change it. In practice, the Herfindahl–Hirschman Index (HHI) is calculated by squaring each supplier’s percentage market share and adding the results; higher scores indicate greater market concentration, and the change caused by a merger (ΔHHI) is often a key screening metric. The HHI is not defined in UK or Irish legislation or case law. It is an economic indicator used by the Competition and Markets Authority (CMA) in the UK (England & Wales, Scotland and Northern Ireland) and by Ireland’s Competition and Consumer Protection Commission (CCPC) as part of their competitive assessment. It supports, but does not determine, the legal test of whether a merger would result in a substantial lessening of competition. Typical usage is in merger notifications and submissions to quantify baseline concentration and the incremental effect of the deal. authorities treat HHI and any referenced threshold bands as informative rather than dispositive, given sensitivities to market definition, share estimation, closeness of competition, entry/expansion and buyer power. Approach and terminology are broadly consistent across the UK and Ireland. Practitioners use HHI alongside other evidence to evaluate unilateral and coordinated effects in oligopolistic markets.