LONDON (Reuters) - Britain's competition regulator referred Sainsbury's 7.3 billion-pound ($9.60 billion) takeover of Asda to an in-depth review on Wednesday because their stores overlapped in hundreds of local areas.
The Competition and Markets Authority said on Wednesday that shoppers could face higher prices or a worse quality of service in places where both chains had shops.
It said it also needed to investigate whether a combination of the country's second and third biggest supermarkets would have increased buying power over suppliers.
Both Sainsbury's and Asda, the British arm of U.S. retailer Walmart, had asked the CMA to move quickly onto the in-depth phase 2 stage, the regulator said in August when it started its inquiry.
The CMA said in August it was "vital to find out if the millions of people who shop in supermarkets could lose out as a result of this deal".
"We...will not allow it to go ahead unless any concerns we find are fully dealt with," CMA chief executive Andrea Coscelli said at the time.
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The merged companies would overtake Tesco to become market leader, but competition lawyers have said they might be forced to sell off so many stores to get the deal passed that its rationale is removed.
A source with knowledge of Sainsbury's and Asda's thinking, previously told Reuters store disposals that run "into the hundreds" would likely kill their deal.
Phase 2 inquiries typically last 24 weeks, with the possibility of an eight week extension.
($1 = 0.7603 pounds)
(Reporting by Paul Sandle; editing by Costas Pitas and Sarah Young)