What is HHI and ‘contestable markets‘?

Herfindahl Hirschman Index (HHI) is a commonly accepted measure of market concentration. It is used to determine the extent of competition in an industry. It takes into account the relative size and distribution of the firms in a market and approaches zero when a market consists of a large number of firms of relatively equal size. It increases as the number of firms in the market decreases and/or the disparity in size between these firms increases.

Another measure used as a benchmark of competition in markets is the contestability of markets espoused by William Boumal. A contestable market is one in which entry and exit of firms are free. It never offers more than a normal rate of profit and is characterized by the absence of any sort of inefficiency in production.