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ACCA Applied Knowledge · Business and Technology · Microeconomic factors

A regulator is considering whether a proposed merger between two firms in the same industry should be allowed. Which of the following is the most likely reason a competition authority would oppose it?

A competition authority would most likely oppose the merger because it creates a dominant firm that reduces competition and may raise prices or limit choice for consumers. Cost savings, shared research and exports are benefits, not grounds for blocking.

  1. AThe merged firm would achieve economies of scale that lower costs
  2. BThe merger would create a firm with a dominant market share, reducing competition and risking higher prices for consumersCorrect
  3. CThe firms would share research and development costs
  4. DThe merged firm would be able to export more

Explanation

Competition authorities focus on protecting consumers from abuse of market power. A merger creating a dominant share lessens competition and may lead to higher prices or reduced choice. The other options are potential benefits that would not typically justify opposition.

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