Adjusting the Herfindahl index for close substitutes: an application to pricing in civil aviation

Mark Lijesen ()

Transportation Research Part E: Logistics and Transportation Review, 2004, vol. 40, issue 2, 123-134

Abstract: The Herfindahl-Hirschman index (HHI) is a well known concentration measure, which is both widely used and widely criticized. The main shortcoming of the HHI is its sensitivity for the relevant market definition, in terms of both geographical boundaries and in terms of product homogeneity. In this paper we develop an adjusted version of the HHI that accounts for close substitutes. We test the adjusted HHI empirically for civil aviation, using airfare data. Our results suggest that the adjusted index generates better results than the traditional indicator.

Keywords: Civil; aviation; Market; power; Herfindahl; index (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (21)

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