The Entropy Index (abbreviated as E Index) borrows the concept of entropy from information theory, representing the average amount of information. Its defining formula is:

Where:

EI is the Entropy Index;
Si is the market share (e.g., sales or value added) of the i-th firm;
n is the total number of firms in the market.

Similarities and Differences Between the E Index and HHI Index
The E Index and HHI Index share some similarities: both are composite indices, meaning they reflect the conditions of all firms in the market, and both are based on the sum of firms' market shares.

However, there are also differences: the weighting assigned to each firm's market share differs—the HHI Index uses the square of market shares, while the E Index is based on the logarithm of market shares. Both assign greater weight to larger firms, but the degree of importance varies. Overall, both the HHI Index and E Index have strong theoretical foundations and practical applicability.