Suppose an industry is composed of 10 firms. Each firm's share of total sales in the industry is 10 percent. If two of the firms merge, then the four-firm concentration ratio in the industry will

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The four-firm concentration ratio is the combined market share of the top four firms in the industry. If two firms merge, then the market share of the remaining firms will stay the same (as each firm originally had a 10 percent share), but the market share of the merged firm will increase to 20 percent (10 percent each). This means that the combined market share of the top four firms will increase, resulting in a higher concentration ratio.

Suppose an Industry Is Composed of 10 Firms