The government challenged the acquisition by Procter & Gamble (P&G) of Clorox. Clorox was the leading manufacturer of liquid bleach at the time of the acquisition, Page 504accounting for 48% of the national sales. It was the only firm selling nationally, and the top two firms accounted for 65% of national sales. P&G is a large, diversified manufacturer of household products, with its primary activity being in the area of soaps, detergents, and cleaners. P&G accounted for 54% of all packaged detergent sales, and the top three firms accounted for 50% of the market. P&G is among the nation's leading advertisers. What is the basis for the government's challenge to this acquisition? Explain.

Answer: The basis for the government's challenge to P&G's acquisition of Clorox

Explanation:

The horizontal merger is the basis for the government's challenge to P&G's acquisition of Clorox because the result would have lessened competition substantially in that line of commerce nationwide. P&G being the leading and mainly national advertiser and also mainly national seller of soaps, detergents and cleaners with sales that accounted for 54 % of the market and a leading brand with 48% of national sales.

With this type of advertising and power control which P&G possess, this would put P&G in a position to control the market and potentially detrimentally affect the consumers. These advantages they posses would reduce the number of competitors and lead to greater concentration in the industry they are.

The basis for the government's challenge to this acquisition is the reliance on the horizontal merger. If the acquisition is approved, it would dissuade new entrants, discourage active competition from firms already in the industry due to fear of retaliation from Procter and decrease nationwide competition significantly in the liquid bleach field.

Explanation:

According to the case FTC v. Procter & Gamble Co., 386 U. S. 568 (1967), Federal Trade Commission (FTC) held the acquisition violative of § 7 of the Clayton Act.