A mathematical calculation that uses market-share figures to determine whether a proposed merger will be challenged by the government. The HHI is calculated by squaring the market share of each merging firm competing in the market and then adding the results. For example, if four merging firms have market shares of 30 percent, 30 percent, 20 percent, and 20 percent, the HHI is 2,600 (302 + 302 + 202 + 202 = 2,600). The HHI takes into account the relative size and distribution of the firms in a market and approaches zero when a market consists of a large number of firms, all of which are relatively small. The HHI increases when the number of firms in the market decreases and as the disparity in size between firms increases in a specific market.
If the HHI is between 1,000 and 1,800 points, the market is moderately concentrated. If the HHI is over 1,800 points, the market is called concentrated. Transactions that increase the HHI by more than 100 points in concentrated markets presumptively raise antitrust concerns under the Horizontal Merger Guidelines issued by the U.S. Department of Justice and the Federal Trade Commission.