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

A government agency investigates a proposed takeover that would give one firm 70% of the national market for bottled gas. Which of the following is the main purpose of this type of merger control?

The main purpose of merger control is to prevent a substantial lessening of competition. Regulators review mergers that could create dominant firms, because reduced competition may lead to higher prices, poorer quality and less choice for consumers. It does not aim to protect profits or equalise firm sizes.

  1. ATo prevent a substantial lessening of competition that could harm consumersCorrect
  2. BTo guarantee the acquiring firm a minimum level of profit
  3. CTo ensure all businesses in the market remain the same size
  4. DTo increase the tax revenue collected from the industry

Explanation

Merger control exists so that regulators can block or modify mergers likely to reduce competition, which may lead to higher prices, lower quality or less choice for consumers. It is not designed to protect profits, equalise firm size or raise tax.

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