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The myth of the unique decomposability: specializing the Herfindahl and entropy measures?
Author(s) -
Acar William,
Sankaran Kizhekepat
Publication year - 1999
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/(sici)1097-0266(199910)20:10<969::aid-smj57>3.0.co;2-0
Subject(s) - herfindahl index , entropy (arrow of time) , econometrics , economics , index (typography) , measure (data warehouse) , mathematics , mathematical economics , computer science , microeconomics , data mining , world wide web , quantum mechanics , physics
This research note investigates the trend towards specializing the Herfindahl index H for measuring industry concentration and the entropy measure E for expressing firm diversity. Examining the “decomposability” of E and H, we show that the professed overriding advantage of the entropy measure with respect to decomposability is not its exclusive preserve; the paper contains a proof that this property is also shared by the Herfindahl index. It is also shown that, due to its more stable range, the H index is more versatile with respect to inversion than the E measure. Strategy researchers are thereby cautioned that the current trend toward an increased use of entropy is risky and should be reassessed. Copyright © 1999 John Wiley & Sons, Ltd.