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

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 .