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Is it true that a merger between two films that are not already in the top four by size can affect both the four-firm concentration ratio and the Herfindahl-Hirshmau Index? Explain briefly.
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Whether it is true that a merger between two firms that are not already in the top four by size can affect both the four-firm concentration ratio and the Herfindahl-Hirshman Index.
Answer to Problem 1SCQ
Yes, it is true that a merger between two firms that are not already in the top four by size can affect both the four-firm concentration ratio and the Herfindahl-Hirshman Index.
Explanation of Solution
Since, the market shares of all the firms are included in the HHI calculation, so when there is a merger between the two firms the HHI will change.
So, in the case of four- firm concentration ratio it is possible that the merger between let’s say the 6th and the 5th largest firms in the market would create a new firm that may be ranked in the top four in the market.
So, in the case mentioned above a merger of the two firms that are neither in the top four, but still they would change the four-firm concentration ratio.
So, it is true that a merger between two firms that are not already in the top four by size can affect both the four-firm concentration ratio and the Herfindahl-Hirshman Index.
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