NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Paolo M. Adajar

MIT Department of Economics
50 Memorial Drive
Cambridge, MA 02142
United States

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Massachusetts Institute of Technology

NBER Working Papers and Publications

November 2019The Surprising Hybrid Pedigree of Measures of Diversity and Economic Concentration
with Ernst R. Berndt, Rena M. Conti: w26512
Measures of economic concentration, such as the k-firm concentration index and the Hirschman-Herfindahl Index (HHI) are commonly used to ascertain the competitiveness of a product market. Within a Cournot model industry equilibrium, it is known a relationship exists between the HHI and the gap between industry price and marginal cost, but the economic theory foundations and intuition underlying the HHI formula are seemingly arbitrary. Here we document that there are indeed powerful and intuitive theoretical foundations to the HHI, but those foundations emanate from outside economics, namely, ecology, where the HHI is known as Simpson’s Diversity Index. We discuss the origins of the HHI and Simpson’s Diversity Index, summarize other measures of concentration, and link them to common meas...
 
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