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The other type of concentration measurement is known as the Herfindahl index and is calculated by squaring the individual producers percentage of the market and adding them together. For instance, if there were 5 firms in an industry and they each had 20% of the total output, the Herfindahl index would be; (20 squared) + (20 squared) + (20 squared) + (20 squared) + (20 squared)= 2000. An example of these concentration ratios, taken from the 1997 US government economic census, are as follows:
4-Firm Concentration Ratio Herfindahl Index
Meat products: 35 393
Fruit and vegetable canning: 24 259
Breakfast cereal: 82 2,445
Women's and and misses' dresses: 13 76
Book printing: 32 364
Stationery: 56 1,128
Soap and detergent: 66 1,619
Men's footwear: 50 857
Women's footwear: 50 795
Bolts, nuts, rivets, washers: 9 40
Electronic computer: 45 728
Radio, TV, wireless broadcasting: 49 972
Burial caskets: 74 2,965
Generally, if the 4-firm concentration ratio is high, the Herfindahl index will be high as well...
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