The Herfindahl-Hirschman Index (HHI) might sound like a mouthful, but this deceptively simple number wields outsized influence in Australia’s boardrooms and regulatory agencies. In 2025, as market concentration becomes a hot-button issue—from supermarket duopolies to fintech upstarts—the HHI is front and centre in debates about fair competition and consumer choice.
Understanding the HHI: More Than Just a Number
The HHI measures market concentration by squaring the market share of each firm in an industry and then summing the results. The higher the score, the more concentrated—and potentially less competitive—the market is. An HHI below 1,500 suggests a competitive landscape; between 1,500 and 2,500 indicates moderate concentration; above 2,500 signals high concentration and possible red flags for regulators.
For example, if four banks each control 25% of the market, the HHI would be 2,500 (252 x 4). But if one bank dominates with a 70% share and the rest split the remainder, the HHI skyrockets, indicating potential monopoly power.
- Low HHI: Many small competitors, healthy rivalry
- Moderate HHI: Some large players, but competition still viable
- High HHI: Few dominant firms, risk of anti-competitive behaviour
Australian Context: Why HHI Matters in 2025
Australian regulators, notably the ACCC, rely on the HHI to assess mergers and acquisitions, especially in sectors where consumer impact is significant—think supermarkets, telecommunications, and banking. In 2025, new ACCC guidelines emphasise closer scrutiny of any deal that pushes the HHI above the 2,500 mark or raises it by more than 200 points in already concentrated sectors.
This has real-world consequences. The proposed merger of two leading supermarket chains in early 2025 was put on hold after the ACCC’s preliminary findings showed the HHI would spike to over 3,100 in several regional markets. Regulators warned of higher prices and less innovation, echoing similar concerns in the banking and energy sectors.
Recent Australian examples:
- Banking: Ongoing consolidation among regional banks has pushed local HHI scores close to 2,700, prompting calls for regulatory intervention.
- Energy Retail: The top three energy retailers now account for over 80% of market share in some states, with HHI figures well above 2,500.
- Supermarkets: Woolworths and Coles together hold over 65% of the national grocery market, keeping the HHI in the “high concentration” zone and under ACCC watch.
Implications for Businesses and Consumers
The HHI isn’t just academic. For businesses, a high HHI signals regulatory hurdles for mergers and acquisitions. Companies planning to expand through acquisition must factor in the likelihood of ACCC scrutiny, especially after the Competition and Consumer Act amendments that came into effect in January 2025. These changes give the ACCC greater power to block deals that risk entrenching market dominance.
For consumers, the stakes are just as high. High HHI scores typically mean less competition, which can translate into higher prices, fewer choices, and slower innovation. In 2025, consumer advocacy groups are using HHI data to push for more market entrants in industries like telecommunications and insurance, arguing that robust competition benefits everyone.
Key points for Australian businesses and consumers in 2025:
- Regulatory scrutiny is highest in markets where the HHI is already elevated.
- Market entrants—especially digital disruptors—can lower the HHI and spur innovation.
- Understanding your industry’s HHI can help shape business strategy and anticipate regulator response.
The Road Ahead: HHI as a Watchdog and a Guide
With global supply chains shifting and digital platforms upending traditional industries, Australia’s competition landscape is evolving fast. The HHI remains a vital tool in the regulator’s kit, but it’s also a barometer for anyone interested in the health of Australian markets. In 2025, expect to see the HHI not just in regulatory filings, but in boardroom presentations, investor briefings, and consumer advocacy campaigns.
Whether you’re an entrepreneur eyeing expansion, an investor sizing up market risks, or a consumer championing choice, understanding the Herfindahl-Hirschman Index is essential to navigating the next wave of Australia’s economic evolution.
