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ACCA Strategic Professional · Advanced Financial Management · Regulatory framework and processes

A competition authority is assessing a proposed merger between two suppliers of industrial components. Which of the following factors would most strongly support the parties' argument that the merger should be cleared despite a high combined market share?

Strong buyer power and low barriers to entry best support clearance. Large customers who can switch easily, and potential entrants who can quickly challenge the merged firm, limit its ability to raise prices, so a high combined market share does not necessarily indicate a substantial lessening of competition.

  1. ACustomers are few, large and able to switch easily, and new entrants could enter the market quickly at low costCorrect
  2. BThe merged firm will be able to raise prices without losing customers
  3. CRegulatory licences make it very costly for new competitors to enter
  4. DThe two firms are each other's closest competitors

Explanation

Low barriers to entry and strong buyer power constrain the merged firm's ability to raise prices, so a high share alone is not decisive. The other options describe features that increase concern: pricing power, entry barriers and loss of a close competitor.

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