Herfindahl Index

en.wikipedia.org

43 points·dedalus··5 comments

The formula hinges on defining what a market is so you can calculate market share. That’s the part of the process that seems most subjective and error-prone. Big companies are always seeking to define their monopoly markets as merely a segment of a bigger market with tons of competition.

The formula here gives you a precise number, but it’s based on imprecise inputs, so it feels pretty unsatisfying to me.

Sure, all indexes are subject to bias and error. Guess the question is what's your alternative?

Usually find truth is best approximated in data through triangulation with a lot of different sources, rather than this one or that one being the end all.

Sorry, but he has a perfectly valid point. Defining the relevant market is The problem in antitrust / competition policy. He deducted that from the formula. That's astute.

If you fail to define the relevant market, you fail to spot the failing market. This goes both ways. Sometimes products that are not even that similar work as substitutes preventing the exercise of market power (say red bull and coke). Other times market power in one narrow product group can work as a stepping stone for extending market power over various markets (say, the way a firm like Proctor and Gamble operates).

This is how the US decided to reject the Shick-Harry’s razor merger: https://www.jdsupra.com/legalnews/when-harry-s-met-schick-ho...

Suggest updating title to include both names. I saw this and wondered if the guy created a different index, all on his own. I’ve never heard the HHI referred to this way.

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