CFA Level I · CFA Level I Exam · The Firm and Market Structures
In a market, four firms have sales of 30%, 30%, 20% and 20% of total industry sales. The Herfindahl-Hirschman Index (HHI), using shares expressed in percentage points, is closest to:
The HHI is 2,600. Squaring each market share in percentage points gives 900, 900, 400 and 400, which sum to 2,600. A monopoly would produce 10,000, so that option is far too high.
- A1,000
- B2,600Correct
- C10,000
Explanation
HHI = 30² + 30² + 20² + 20² = 900 + 900 + 400 + 400 = 2,600. A value of 10,000 applies only to a monopoly, and 1,000 would result from a more fragmented market.
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