Market share answers a simple question: of all the business in a market, how much goes to each player? It is hard to measure precisely without paid research, but a reasonable estimate is often enough to make good decisions. This guide shows how to build one from public proxies and how to read market concentration with the Herfindahl-Hirschman Index (HHI).
Choose the best proxy you can get
In rough order of reliability:
- Revenue. Public companies report it; private companies sometimes file accounts or mention figures in press coverage. Use one currency.
- Units, customers or orders. Sometimes published in press releases or investor updates.
- Locations or outlets. Good for retail, restaurants, clinics and gyms of similar size.
- Review counts. Reviews accumulate roughly in proportion to customers, especially on Google Maps and marketplaces. Compare the same platform for everyone.
- Website visits. Estimated by Similarweb and similar tools. Good for online businesses; weak for offline ones.
- Employees. From LinkedIn; useful for service firms where revenue scales with headcount.
Use one proxy for everyone. Mixing revenue for some and reviews for others produces nonsense.
Calculate shares
Add up the chosen measure for all the businesses you track and divide each one by the total. Remember that this is the share of the tracked set, not the whole market. If you track eight restaurants in a neighbourhood of fifty, the shares describe those eight.
Measure concentration with HHI
The Herfindahl-Hirschman Index sums the squares of each business's market share in percent:
HHI = s₁² + s₂² + … + sₙ²
Example: shares of 40%, 30%, 20% and 10% give 1,600 + 900 + 400 + 100 = 3,000.
The 2023 Merger Guidelines published by the US Department of Justice and Federal Trade Commission treat markets with an HHI above 1,800 as highly concentrated. As a rule of thumb for strategy (not legal advice):
| HHI | Reading | What it usually means |
|---|---|---|
| Below 1,000 | Unconcentrated | Fragmented. Room for a focused specialist to gain share |
| 1,000-1,800 | Moderately concentrated | Clear leaders, but differentiation still works |
| Above 1,800 | Highly concentrated | A few players dominate. Win a segment before attacking head-on |
CR4: the four-firm concentration ratio
CR4 adds up the shares of the four largest businesses. Above roughly 60% suggests an oligopoly where the leaders set the terms. It is less precise than HHI but easy to explain.
A worked example
A city has six specialty cafés. Google review counts are 5,600, 3,900, 2,150, 1,780, 1,240 and 820 (total 15,490). Shares: 36.2%, 25.2%, 13.9%, 11.5%, 8.0% and 5.3%. HHI = about 2,300, CR4 = 86.8%. The market is highly concentrated among the tracked set, led by a chain outlet. The smallest café, with 5.3%, should not fight the leader on reach. It should own a segment the leaders serve poorly, such as work-friendly seating or specialty beans.
Try it with the free market share and HHI calculator.
Limits of proxy-based share
- Review counts favour older businesses and platforms that ask for reviews aggressively.
- Traffic estimates can be off by a large margin for small sites.
- Outlets ignore differences in outlet size.
Use proxies to understand the shape of the market, not for exact numbers. When two proxies tell the same story, you can be more confident.
Frequently asked questions
Is HHI only for antitrust? No. Competition authorities use it to review mergers, but it is also a simple way for any business to describe how fragmented its market is.
Why square the shares? Squaring gives large players more weight, so one dominant firm raises the index much more than many small ones.
What is a good HHI for a new entrant? Lower is usually easier: fragmented markets have no single player controlling customers, suppliers or prices.
Can I compare HHI across markets? Only when both were calculated the same way, with the same proxy and a similarly complete list of businesses.