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ACCA Applied Knowledge · Business and Technology · Political and legal factors affecting business

A competition authority concludes that a proposed merger of two supermarket chains would raise prices, but the firms argue it will deliver large cost savings. Which action is the authority's most proportionate remedy if it believes the savings can be kept while competition is protected?

The most proportionate remedy is to approve the merger on condition that some overlapping stores are sold to a rival. This keeps competition in affected areas while allowing the merger's efficiencies. Blanket bans, profit caps or nationalisation go beyond the normal remedies used in merger control.

  1. AClear the merger subject to the sale of some stores to a rivalCorrect
  2. BPermanently ban all supermarket mergers
  3. CSet a maximum profit for the merged firm in all industries
  4. DNationalise the merged business

Explanation

Authorities can clear a merger with conditions, such as requiring divestment of overlapping stores to a competitor. This preserves competition locally while allowing efficiencies. A blanket ban, universal profit cap or nationalisation is not a proportionate merger remedy.

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