- noun (written as Herfindahl index)an index developed by the US economist Orris Herfindahl (1918–1972), used to calculate the dominance of a market by a small number of firms. The index is a simple way of calculating market concerntration, by calculating the market share of various firms, then squaring it and summing the squares. It gives the number of firms in the market and the relative size of each. It was subsequently further refined to form the Herfindahl-Hirschmann index.
The Herfindahl index is a measure of the degree to which an industry is concentrated and is the sum of the squares of each firm's market share. The formula for the index (H) is:
H = Snf2n
Where fn is the market share of the nth firm. It has a maximum value of 1002 = 10000 (which indicates a monopoly) and a minimum value of zero. It is sometimes also termed the Herfindahl-Hirschman Index.