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The myth of the unique decomposability: specializing the Herfindahl and entropy measures?

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  • William Acar
  • Kizhekepat Sankaran
Abstract
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.

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  • William Acar & Kizhekepat Sankaran, 1999. "The myth of the unique decomposability: specializing the Herfindahl and entropy measures?," Strategic Management Journal, Wiley Blackwell, vol. 20(10), pages 969-975, October.
    • Handle: RePEc:bla:stratm:v:20:y:1999:i:10:p:969-975
    DOI: 10.1002/(SICI)1097-0266(199910)20:103.0.CO;2-0
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