Mergers as Market Access

Minuk Kim, R’ 16, assistant professor of economics at Bryn Mawr College, returns to campus for the Department of Mathematics & Statistics' Annual Colloquium.

Abstract:

Mergers allow companies to expand the range of products they offer and to expand the geographic regions they serve. We develop a simple model of post-merger rollout in which reaching a market entails a large,
fixed access cost, while expanding the number of products within an existing regional distribution network is much cheaper.

Rollout incentives then depend on similarity to the acquirer’s current portfolio, which dampens expansion, and on latent regional demand, which increases profitability once access is obtained.

Using mergers in the U.S. spirits industry from 2010–2019, our model leads to a hand-built merger panel of 39 mergers and 292 products. The panel is used to quantify the extent to which store coverage is affected by product similarity (decrease) and latent demand (increase). We show that these effects sharpen at the time of acquisition and are amplified for foreign acquisitions. Overall, variety gains from mergers are concentrated in low-similarity, high-demand products.