Correct Option (B)
Statements 2 and 3 are correct.
- Statement 2: The passage indicates that foreign investors can dominate the relevant domestic market by acquiring a domestic enterprise or establishing a joint venture with one. This action may substantially lessen competition and allow the foreign investor to gain a dominant position, leading to higher prices.
- Statement 3: The passage describes a scenario where affiliates of two separate multinational companies, initially competing in a developing economy, lose their independence when their parent companies merge overseas. This consolidation can virtually eliminate competition in the host country, resulting in artificially inflated product prices.
Incorrect Options:
- Statement 1: The passage mentions multinational companies being accustomed to domestic laws as a factor that makes an economy attractive for FDI, as it ensures a level playing field. It does not present this as a mechanism for foreign investors to dominate the domestic market.
- Statement 4: The passage does not state that foreign companies dominate the domestic market by lowering the cost of their products compared to domestic companies. Instead, it focuses on strategies like mergers, acquisitions, and joint ventures that reduce competition and can lead to higher prices.