UPSC Prelims 2012 · CSAT
Question 37: Reading Comprehension
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 joint 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 ?
AnswerUPSC’s answer is (b).
The passage describes two routes by which a foreign investor can gain a dominant position: acquiring a domestic firm or forming a joint venture with one (statement 2), and, when the overseas parents of two competing affiliates merge, the affiliates lose their independence and competition in the host country falls (statement 3). Statement 1 is really the passage's reason why MNCs are comfortable with competition law and why an economy with it attracts FDI. Statement 4 is not mentioned; the passage speaks of higher prices instead.
- 1. Familiarity with competition law is given as a reason FDI is attracted, not a way of dominating a market.
- 2. Acquiring a domestic enterprise or entering a joint venture with one can lessen competition and give dominance.
- 3. When parent companies merge abroad, their affiliates stop competing and competition may be virtually eliminated.
- 4. The passage speaks of dominance leading to higher prices, not of lowering costs against domestic firms.
How you could have got this
- If you were sure statement 1 is not correct, (a), (c) and (d) go: each of them includes 1.
What you needed to know: Familiarity with competition law is given as a reason FDI is attracted, not a way of dominating a market.
Only (b) is left. You didn’t need statements 2, 3 or 4.
Which options go is worked out from UPSC’s key and the options, not by a model.
Why each option is right or wrong
- (a) Wrong. Statement 1 is not a route to dominance.
- (b) Right. Acquisitions or joint ventures, and mergers of parents abroad, are the stated routes.
- (c) Wrong. It includes statement 1, which is not a route to dominance.
- (d) Wrong. It includes statements 1 and 4, neither of which is a stated route.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2012, General Studies Paper II (CSAT), Series A. The paper on upsc.gov.in.