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Business concentration through the eyes of the HHI

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  • George Djolov

    (University of Stellenbosch, and Socio-Economic Integration Unit, Statistics South Africa, Pretoria, South Africa)

Abstract

This paper examines the understanding of business concentration through the Her findahl-Hirschman Index (HHI), by showing that this index is conceptually a model according to which this concentration is the consequence of a renewal process. This process is prompted by firms engaging in different types of economic activity as the means by which to vie for market share. The resultant rivalry produces departures between the market shares of firms. These departures ultimately transmit into differing concentration levels attributable only to the economic activity with which firms vie. As a consequence, while the HHI is commonly interpreted to be a screening indicator of market structure, it is in fact first and foremost a screening indicator of market conduct, which incidentally doubles-up as an indicator of market structure. As part of this, the paper shows that while the HHI cannot identify the exact economic conduct that produces the corresponding business concentration of the observed market structure, it does reveal that whatever this conduct is, it is always subordinated to some type of regenerative or revitalising process.

Suggested Citation

  • George Djolov, 2014. "Business concentration through the eyes of the HHI," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 7(2), pages 105-127, September.
    • Handle: RePEc:tei:journl:v:7:y:2014:i:2:p:105-127
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    References listed on IDEAS

    as
    1. Djolov, George, 2013. "The Herfindahl-Hirschman Index as a decision guide to business concentration: A statistical exploration," Journal of Economic and Social Measurement, IOS Press, issue 3, pages 201-227.
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    More about this item

    Keywords

    Business concentration; Market conduct; Market structure; Renewal processes;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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