The Strategic Effects of a Merger upon Supplier Interactions

We consider how a merger between two naturally differentiated dealers affects their interactions with a common supplier, and identify conditions under which the merger can increase or decrease the combined net worth of the two firms. Among other things, we find that the attractiveness of merging depends critically upon which level of the supply chain has greater potential to influence demand. Specifically, the greater the supplier’s ability to invest in stimulating end demand, the more likely it is that the naturally differentiated firms will be better off operating independently than merging. On the other hand, if the greatest opportunities for stimulating demand are through the service that is provided by the dealers, then merging their operations will be more attractive. (Supply Chain Management, Service Outsourcing, Channels of Distribution, Product Line Pricing, Non-Product Line Pricing) ∗The University of Texas at Austin, Management Department, Austin, TX 78712, [email protected] †The University of Texas at Austin, Department of Management Science and Information Systems, Austin, TX 78712, [email protected] ‡The University of Texas at Austin, Department of Management Science and Information Systems, Austin, TX 78712, [email protected]. Gang Yu’s research is supported in part by the NSFC grant 9928001, and by the FRA grant from The University of Texas at Austin.