The Herfindahl-Hirschman Index (HHI) destroys inorganic growth value. The purpose of business management is not to cozy up to the competition. The ‘take no prisoners’ battlefield culture must celebrate HHI scores over 1800, regardless of regulator concerns.
We are here to make money from stocks, rather than to try and influence the Washington administration. So let us work on increasing market concentration in legal ways. Nothing stops the companies in which you are interested from taking market shares away from competitors through organic routes.
Service can be the missile against which HHI regulators have no shields. Competitors are welcome to have products with similar features, but you are free to brand with distinction. Customer insights, process excellence, and interactive skills can set you apart even in a market with negligible concentration.
Another approach to jump over the HHI hurdle is to look for unmet needs. The Fed cannot punish you for creating monopolies through sheer creativity and technological excellence. This is another argument in favor of investments in organic growth rather than corporate acquisitions.
Then there is the collaboration route. Pharmaceutical companies offer examples through the joint-marketing convention for non-competing drugs. It is possible to circumvent HHI by addressing market segments in new ways.
The anti-trust concept has its merits, but stock investors buffeted by the kind of uncertainty that 2008 has witnessed should not be blamed for putting HHI concerns on the back burner, if not extinguishing such flaming concerns altogether.
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