Q9Restructured Power System
Question
Q.9. What is HHI Index?
Answer
The HHI (Herfindahl-Hirschman Index) is a measure of market concentration calculated as the sum of the squares of the market shares of all firms in a market, used to assess the degree of competitiveness or market power in a restructured electricity market.
The Herfindahl-Hirschman Index (HHI) is a widely used quantitative measure of market concentration, calculated as the sum of the squares of the market share percentages of every firm participating in a given market: HHI = Σ(si)², where si is the market share (in percent) of firm i. A higher HHI value indicates a more concentrated market with greater potential for the exercise of market power by dominant firms (an HHI above 2500, on a 0-10,000 scale, is typically considered highly concentrated), while a lower HHI indicates a more competitive, fragmented market structure; regulators use HHI to assess whether a proposed generation merger/acquisition or an existing electricity market structure poses market-power concerns requiring intervention.