NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
An analyst computes the Herfindahl-Hirschman Index (HHI) for an industry by summing the squares of market shares (in percent). Four firms hold shares of 40%, 30%, 20% and 10%. What is the HHI?
The HHI is 3,000. It is computed by squaring each firm's percentage market share and adding them: 1,600 plus 900 plus 400 plus 100. A value this high indicates a highly concentrated industry dominated by a few firms.
- A100
- B1,000
- C3,000Correct
- D2,500
Explanation
HHI = 40^2 + 30^2 + 20^2 + 10^2 = 1,600 + 900 + 400 + 100 = 3,000. The figure 100 is just the sum of shares, not squared. The figure 2,500 results from squaring 50 wrongly or omitting a firm, and 1,000 is not derived from the data.
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