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
Date Written: May 1, 2010
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: Suggested Citation