Toddler toy firm VTech could face an in-depth competition probe after merging with close competitor Leapfrog, regulators have said.
The firms are two of the largest selling toddler learning toys in the UK, the Competition and Markets Authority said.
The regulator is concerned about price rises and quality issues.
VTech has until Wednesday to address the CMA’s concerns, or it will face an in-depth investigation, the CMA said.
An initial inquiry by the CMA found that the companies compete closely in supplying toddler products to retailers and there are few other competitors.
The CMA raised concerns that the deal may lead to a “substantial lessening of competition in the market”.
It added that, without the merger, both firms would have been close competitors in the supply of “child electronic reading systems,” with audio narration accompanying a physical book.
Kate Collyer of the CMA said: “VTech and LeapFrog are two of the largest and best known brands supplying electronic toys and learning products for children.
“Retailers see them as close rivals and rely on competition between the companies to keep prices down.
“We are concerned that the merger could lead to prices rising, the quality of products going downhill or the range on offer being reduced.
“Given this, the merger warrants an in-depth investigation – unless VTech is able to offer suitable undertakings to address our concerns.”
Hong Kong-based VTech bought US firm Leapfrog Enterprises for $72m (£55m) in April, bringing together two of the biggest names in children’s electronic toys.