Merger Profitability in Industries with Brand Portfolios and Loyal Customers

WZB Markets and Politics Working Paper No. SP II 2010-08

23 Pages Posted: 23 Oct 2010

See all articles by Kai A. Konrad

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Date Written: May 1, 2010

Abstract

We study the equilibrium effects of mergers between firms with brand portfolios and brand loyal customers for pricing and profitability. We find that the "merger paradox" (Salant, Switzer and Reynolds 1983) is absent in these markets. The acquisition of brand portfolios can be profit enhancing for the merging firms and payoff neutral for the firms not involved in the merger. This may explain the emergence of brand conglomerates such as Richemont, PPR or LVMH.

Keywords: Brand portfolios, merger profitability, customer loyalty

JEL Classification: D43, L22, M31

Suggested Citation

Konrad, Kai A., Merger Profitability in Industries with Brand Portfolios and Loyal Customers (May 1, 2010). WZB Markets and Politics Working Paper No. SP II 2010-08 , Available at SSRN: https://ssrn.com/abstract=1695893 or http://dx.doi.org/10.2139/ssrn.1695893

Kai A. Konrad (Contact Author)

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/home.cfm

Centre for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, 81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, 53072
Germany

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