The HHI Is Equal to the Sum of the Squares

question 128

Essay

The HHI is equal to the sum of the squares of the market share of each firm in the industry. Therefore if you take the square of 50 percent and add it to the square of 1 percent multiplied by 50 (because there are 50 firms with 1 percent market share), you will get an HHI of 2,550.

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Definitions:

BATNA

Best Alternative to a Negotiated Agreement, the most advantageous alternative course of action a party can take if negotiations fail and an agreement cannot be reached.

Resistance Point

In negotiation, the least favorable point at which a party is willing to accept a deal, beyond which they prefer to walk away.

BATNA

Best Alternative to a Negotiated Agreement; the best option one has if current negotiations fail.

Fixed-Pie Bias

The misconception in negotiations that the 'pie' or total available benefit is fixed, leading to competitive rather than cooperative strategies.