The Korean Economic Review
Merger Profitability in Industries with Brand Portfolios and Loyal Customers
Kai A.Konrad (Competition and Tax Law and Social Science Research Center) Year 2010Vol. 26No. 1
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 enhancingfor 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.