According to the passage, how does a foreign investor dominate the relevant domestic market?

Question

PASSAGE

The need for Competition Law becomes more evident when foreign direct investment (FDI) is liberalized. The impact of FDI is not always pro-competitive. Very often FDI takes the form of a foreign corporation acquiring a domestic enterprise or establishing a ***** venture with one. By making such an acquisition the foreign investor may substantially lessen competition and gain a dominant position in the relevant market, thus charging higher prices. Another scenario is where the affiliates of two separate multinational companies (MNCs) have been established in competition with one another in a particular developing economy, following the liberalization of FDI. Subsequently, the parent companies overseas merge. With the affiliates no longer remaining independent, competition in the host country may be virtually eliminated and the prices of the products may be artificially inflated. Most of these adverse consequences of mergers and acquisitions by MNCs can be avoided if an effective competition law is in place. Also, an economy that has implemented an effective competition law is in a better position to attract FDI than one that has not. This is not just because most MNCs are expected to be accustomed to the operation of such a law in their home countries and know how to deal with such concerns but also that MNCs expect competition authorities to ensure a level playing field between domestic and foreign firms

According to the passage, how does a foreign investor dominate the relevant domestic market?

1. Multinational companies get accustomed to domestic laws.

2. Foreign companies establish ***** ventures with domestic companies.

3. Affiliates in a particular market/sector lose their independence as their parent companies overseas merge.

4. Foreign companies lower the cost of their products as compared to that of products of domestic companies.

Which of the statements given above are correct?

(a) 1 and 2 only (b) 2 and 3 only (c) 1, 2 and 3 only (d) 1, 2, 3 and 4

Answer 1

(b) (a) The first option of multinational companies getting accustomed to domestic laws is not mentioned at all. So, this is not the correct answer.

(b) Foreign companies may establish ***** ventures with domestic or companies may get stronger as the parent companies merge overseas. Both options are mentioned in the paragraph. So, this is the correct answer.

(c) Since option (1) is included this is not the right answer.

(d) Same as in (c). Moreover option (4) where foreign companies lower costs finds no mention in the paragraph.