Optimizing the level of branch concentration with marginal values of Herfindahl-Hirschman index

V. Sukhoteplyy

Economy and Forecasting, 2010, issue 3, 141-154

Abstract: Striving of Ukraine for the European Union assumes, among other things, the sound understanding of the Herfindahl-Hirschman Index (HHI) methodology in defining the level of the competition in an industry. Modeling of an industry structure using predefined values of HHI and the concept of the Index of Competitive Potential of Industry (ICPI) has shown that the traditional use of the HHI criterion with-out the explicit consideration of the number of firms in an industry can results in ambiguous conclusions, since already at Ð Ð I=1000 there could exist such a state of industry, when small companies are obviously in a much more worse position than large ones. On the other hand, for the industries with a comparatively small number of firms even at Ð Ð I=2800 the competitive opportunities for small firms could be high enough and such structures of industries have a right to exist. As an optimal structure of an industry there could be considered such a structures for which the first derivative of ICPI with respect to number of firms n is more or equals zero irrespective of the number of firms.

Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eip:journl:y:2010:i:3:p:141-154

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