THE HERFINDAHL FIRM CONCENTRATION INDEX FOR AN ANALYSIS OF MARKET-STRUCTURE

Herfindahl's concentration index (H) is used by most antitrust authorities. The Theory has established that this index is appropriate in cases of firms of similar sizes. However, in other circumstances such index gives results opposite to those suggested by industrial organization theory. For example, H always increases with mergers, in spite of the fact that theory has concluded that some mergers, under some circumstances, can be procompetitive. In this essay a dominance index (P) is proposed. Such index coincides with H when firms are of the same size, but it decreases in the face of some mergers, when some conditions are fulfilled. This conditions are closed to those suggested by some theorists and by some antitrust practitioners.