The Herfindahl-Hirschman Index (HHI) is a commonly accepted and used measure of market concentration. It is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. Only one firm means 100% market share. In this case the HHI would equal 10 000 (100²), indicating a monopoly.
A market consisting of 4 companies with shares of 50%, 30%, 15% and 5%, results in a HHI of (502 +302 +152 +52)=3650. 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 of relatively equal size. The HHI increases both as the number of firms in the market decreases and as the disparity in size between those firms increases.
In the United States markets in which the HHI is between 1 000 and 1 800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1 800 points are considered to be concentrated. In the EU the threshold for concentrated markets is 2 000.
In WMD the concentration of producer countries is calculated by the HHI similarly to the firms index. To avoid misunderstandings with the "classical" HHI, the countries concentration index is named as (mod)HHI(ct).