Question

Correctly calculate the HHI for the top 10 domestic airline markets and top 2 hubs. Show all steps of the calculation process to receive credit.

Answer 1

The Herfindahl-Hirschman Index is a measure of market concentration. It is defined as the sum of the squares of the market shares of each airline in the market.

Suppose 10 airline companies in the United States have the following market share

A : 29% , B : 27% , C : 14% , D : 9% , E : 6% , F : 5% , G : 4% , H : 3% , I : 2% , J : 1% ,

HHI Index= 29² + 27² + 14² + 9² + 6⁶ + 5² + 4² + 3² + 2² + 1²

HHI Index = 1938

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Suppose the top 2 hubs have the following market share

Hub 1 : 33% , Hub 2 : 26%

HHI Index = 33² + 26²

HHI Index = 1765