W. Acar et K. Sankaran, The myth of the unique decomposability: Specializing the Herfindahl and entropy measures?, STRAT MANAG, 20(10), 1999, pp. 969-975
This research note investigates the trend towards specializing the Herfinda
hl index H for measuring industry concentration and the entropy measure E f
or expressing firm diversity. Examining the "decomposability" of E and H, w
e show that the professed overriding advantage of the entropy measure with
respect to decomposability is not its exclusive preserve; the paper contain
s 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 versatil
e with respect to inversion than the E measure. Strategy researchers are th
ereby cautioned that the current trend reward an increased use of entropy i
s risky and should be reassessed. Copyright (C) 1999 John Wiley & Sons, Ltd
.