### Is it true that the four-firm concentration ratio…

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Problem 1

Is it true that a merger between two firms that are already in the top four by size can affect both the four-firm concentration ratio and the Herfindahl-Hirshman Index? Explain briefly.

## Discussion

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## Video Transcript

Let's talk about how mergers affect the four from ratio in the H E che index. Now, since here we have, for example, we have firms A, B, C, D and E with market share in market share square because, as we know, the H H I Index is going to use her Steve Market share Square No for the four firm ratio over doing, it's adding the market shares for the 1st 4 firms. So if we add a, B, C and G, together we get 53 train. But now let's see that firms A and B merch, right? So we're talking about these two for much merging so that this is one firm. Well, then the top four firms are going to be one which would be firm A B to forsee three firm T and four for me. So altogether, the market shares gonna go from 53 2 62 rain. So now this market, the four from Richard's going to increase to 62. So basically, the four biggest firms in this market control 62% of hole transactions. Um, so we can see how emerging will increase this, um, total market. Ah, kind of ownership by these firms. Let's look at the H H I index. Here we always doing is adding the tough for market share squares. And the reason for the Squares is to give more weight to those firms. That own kind of higher percentage is off the market. So the 1st 4 gonna be 7 25 But let's say that thesis to merge again so that we would have 21 right for maybe will now be 21 times 21. And that would give us 4 41 for the first firm, right? The second firm would be be, I mean, see, with 144 right, 12 square, that there would be d with 100 right? That's their market share square. And the next one will be easy with 81. Now, if we add this all together, we get six. Get another six Here we carry that one 7 66 All right. So again we can see how merging will increase the both the four firm ratio in the H. H