Role of Hhi in Electricity Market Design Issues

Author Name : Dr. Dwarka Prassad, Dr. Digambar Singh

ABSTRACT

The HHI stands for Herfindahl-Hirschman Index. The HHI plays an important role in electricity market design issues. The Herfindahl-Hirschman index, better known as the Herfindahl Index., is a statistical measure of concentration. Typically, HHI is used to study electricity market  issues of an electricity supply industry in transition from a monopoly to a competitive structure. The HHI is generally used to measure of market concentration, and to detect competitive behavior, in industries. Generally, HHI is used to measure (pre & pos) t or ( M & A) transactions. Mergers and Acquisitions (M&A) is a general term used to describe the consolidation of companies or assets through various types of financial transactions In fact, an increase in the value of the index is usually interpreted as an indicator of actions which may lessen competition or even create a monopoly. The primary advantage of the Herfindahl-Hirschman Index (HHI) is the simplicity of the calculation necessary to determine it and the small amount of data required for the calculation.The primary disadvantage of the HHI stems from the fact that it is such a simple  measure that it fails to take into account the complexities of various markets. Understanding the level of market competition can be important for strategic planning as well as when trying to establish pricing for a company’s products or services. This paper will focus role of (HHI) in electricity market design issues.

Keywords: HHI, Concentration, Competition, Market Share, and Merger