RESEARCH NOTES AND COMMUNICATIONS THE MYTH OF THE UNIQUE DECOMPOSABILITY: SPECIALIZING THE HERFINDAHL AND ENTROPY MEASURES?

摘要

This resarch note investigates the trend towards specializing the Herfindahl index H for measureing 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.