Talk:Herfindahl index

From Wikipedia, the free encyclopedia

	This article is within the scope of the Economics WikiProject, an effort to create, expand, organize, and improve economics-related articles..
???	This article has not yet received a rating on the assessment scale.
???	This article has not yet received an importance rating on the importance scale.

Hefindahl-Index oder Herfindahl-Hirschmann Index (HHI)? - is there any diffrence? which term is used more often?

/krolik

There is no difference, and the former term, just plain Herfindahl Index, is used more often. -M

Contents 1 CFA study material uses decimals 2 Normalized vs. Non-normalized. 3 squared ² / L_2 norm 4 Origin of the name

[edit] CFA study material uses decimals

Decimals are also used in Bruno Solnik & Dennis McLeavey's book "International Investments". see p. 265 Cheers, FSR

[edit] Normalized vs. Non-normalized.

I don't know what standard practice in economics is. In math/physics expressing the s\sub{i}'s in the interval [0,1] would yield an in index in that interval i.e. it would already be normalized. If you express the s_i's in percent, as noted above, monopoly = 10,000. Wouldn't that be the unnormalized HI? Then dividing by 10000 would yield the normalized HI?

Then again, I'm just a failed physicist. If normalization goes wrong, I just renormalize :) BTW I did google the net to no avail. I emailed the one hit I was allowed to see for free :)

-r

The non-normalized version is by far the more widely used, at least traditionally. -M

[edit] squared ² / L_2 norm

Why is the L2 norm (squaring each s_i, ²) considered sufficient "stretching" of the importance of concentrated market share? For example you would get even more weight attributed to having a few big firms by cubing ³ the data and less weight attributed to having a few big firms by putting the data to the one-and-a-half power. Why is 2 the right number?

Perhaps there is a proof showing that squaring the data has some nice property. Is this the case?

Also is there any way to test the goodness of this index? E.g., are here correlations between decreasing HHI and decreasing price over time in various markets? Is there a way to test if the index is inappropriate because certain market players fill qualitative niches or for another reason "should" be distributed as e.g. 10-10-80?

Crasshopper 16:43, 18 May 2006 (UTC)

There really isn't a good way to test this for niches, as you describe. The "should" that you are talking about is too conceptual to be born out in the data. -M

If I have to speculate, there is no "right" power. Different markets will have a different minimum number of firms that guarantees perfect-competition-like behavior. It would probably make sense to come up with a general HHI metric, which gives the power as a parameter. Then different markets could have different values for the parameter derived from some price elasticity standard, or simply experts' consensus.

Anyway, American regulators have decided to allow different HHIs for different markets and that seems to be sufficient for practical purposes so far. --Cryout 18:50, 10 August 2007 (UTC)

[edit] Origin of the name

(I am usually posting on wikipedia NL, but this remark seemed more appropriate with an American audience.) This article is missing a reference to the scientists Herfindahl and Hirschman (Hirschmann ?), either in the form of an internal wikipedia link or bibliographically near the bottom.--158.169.131.14 08:18, 12 September 2007 (UTC) (Lieven Smits)