The Herfindahl-Hirschman Index as a decision guide to business concentration: A statistical exploration

Article type: Research Article

Authors: Djolov, George^a

Affiliations: [a] Socio-Economic Integration Unit, Statistics South Africa, University of Stellenbosch, Pretoria, South Africa. Tel.: +27 12 336 0192; E-mail: georged@statssa.gov.za

Abstract: This article examines whether the Herfindahl-Hirschman Index (HHI) is a reliable decision-making tool of business concentration. The statistical properties of the index are considered in order to facilitate an improved statistical decision-making with the index. A misinformed application of the HHI as to its statistical characteristics has encouraged questionable uses and applications of the index. It has also limited its potential uses. Understanding the statistical nature of the HHI reveals that there is more to this index than known heretofore.

Keywords: Business concentration, Herfindahl-Hirschman Index, relative variability

DOI: 10.3233/JEM-130379

Journal: Journal of Economic and Social Measurement, vol. 38, no. 3, pp. 201-227, 2013