A measure of firm size relative to market size used as an indicator of market power. The Herfindahl index is defined as the sum of the squares of market shares of the firms operating in a market, H = Σ‎_is_i², where s_i is the market share of the ith firm. If there are N firms, the lowest value H can take is when all N firms have equal shares, so that s_i = 1/N for all i, and H = 1/N. The highest value H can take is 1, which is approached as the market share of the largest firm tends to 1 and the market shares of the rest tend to 0. H thus rises as concentration increases. The advantage of the Herfindahl index over the N-firm concentration ratio is that it is sensitive to the distribution of market share among firms. See also Lerner index.