A probabilistic approach of Hirschman-Herfindahl Index (HHI) to determine possibility of market power acquisition

This paper presents a probabilistic approach of the application of the Hirschman-Herfindahl Index (HHI) for the estimation of market concentration. A region of uncertainty in terms of the HHI is defined, the probability of any market participant acquiring market power is estimated, and a trend for this probability with the changes of HHI is identified by the analytical approach. The analysis is supported by simulation results of different markets with various numbers of participants. The probability of any market participant acquiring market power is seen to rise exponentially until it saturates at the upper limit.