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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

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.

To determine

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

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

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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