Question

Write a convincing argument that the Herfindahl-Hirschman Index (HHI) is a “reasonable” or “good” measure of inequality of the distribution of resources (be they wins, championships, gate revenues, player salaries, etc.) To make your argument, you can use little numerical examples, or you can discuss the algebraic or geometric properties and behavior of HHI. Why does an increase in the sum of squared resource shares indicate an increase in inequality?

Answer 1

The term HHI means the Herfindahl-hirschman index ,a commonly accepted measure of market concentration.The HHI is calculated by sqaring the market share of each firm competing in the market and then summing the resulting numbers.the hhi takes into account the relative size distribution of the firms in a market.It approaches zero when a market is occupied by a large number of firms of relatively equal size.This HHI index is matterto understand where a particular company's source of growth and competitive advantage comes from,and competition structure is one of the main components of industry analysis.HHI calculate high concentration ratio that indicates that few firms produce most of the industry output and may indicate a significant amount of market power in the industry and and it shows the inequality exist there.