Final answer:
After a merger between firm B and firm E, both the industry's four-firm concentration ratio and Herfindahl index would increase, indicating a higher level of market concentration and potentially less competition.
Step-by-step explanation:
If firm B merged with firm E, the industry's four-firm concentration ratio would increase, and its Herfindahl index would increase. The four-firm concentration ratio is a measure of market concentration that sums the market share percentages of the four largest firms in an industry. By merging, two firms become one entity, which could elevate its rank among the top four, if the new merged firm has a significant market share. This, in turn, increases the four-firm concentration ratio, signaling a higher concentration of market power within the top firms.
The Herfindahl-Hirschman Index (HHI) is a more precise tool, as it squares the market share of each firm before summing these squares. A merger causes a reduction in the number of firms, and changes the squared market shares in the calculation, usually resulting in a higher HHI. This reflects an increase in market concentration and a potential reduction in competition. To determine the effect of a merger on industry concentration, we need more information about the market shares of firms B and E and potentially other firms in the industry.
The four-firm concentration ratio is calculated by adding the market shares of the four largest firms in the industry. If firm B and firm E are among the four largest firms, and they merge, the concentration ratio would likely increase.
The Herfindahl index, on the other hand, considers the market shares of all firms in the industry. If firm B and firm E have significant market shares, a merger would likely increase the Herfindahl index, indicating higher concentration and potentially reduced market competition.
Without specific market share data, it's challenging to provide a precise answer.