Final answer:
The impact of a merger between firm B and firm E on the industry's four-firm concentration ratio depends on whether the merger results in the new entity entering the top four. If it does not, the concentration ratio remains unchanged; if it does, the ratio increases.
Step-by-step explanation:
If firm B merged with firm E, the four-firm concentration ratio in the industry may or may not change. This depends on whether the merger would result in the new combined entity being ranked among the top four firms in the market. If both B and E were previously outside the top four and the merger does not lift the combined entity into the top four, the concentration ratio would remain the same, implying little impact on the market competition. However, if the combined size is sufficient to break into the top four, then the concentration ratio would increase, potentially raising concerns about reduced competition.
The concentration ratio approach and the Herfindahl-Hirschman Index (HHI) are tools used to assess the level of market concentration and the potential impact of mergers on competition. The HHI, unlike the four-firm concentration ratio, includes the market shares of all firms and is thus affected by any merger.