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Customer-specific synergies and market convergence


Schmidt, Jens; Makadok, Richard; Keil, Thomas (2016). Customer-specific synergies and market convergence. Strategic Management Journal, 37(5):870-895.

Abstract

We use an analytical model to study the effects of customer-specific synergies – i.e. synergies that arise when firms sell multiple products to the same customers. At the firm level, we show that the profitability of a customer-specific synergy depends upon cross-market correlation of customer preferences, differs when the synergy is cost-based versus differentiation-based, and can be negative even when the synergy is kept proprietary to a single firm. We also show that returns to imitating such a synergy may decline as it strengthens. At the industry level, we find that exploiting customer-specific synergies causes endogenous market convergence at a point that depends upon whether the synergy is cost-based or differentiation-based and whether it is imitated.

Abstract

We use an analytical model to study the effects of customer-specific synergies – i.e. synergies that arise when firms sell multiple products to the same customers. At the firm level, we show that the profitability of a customer-specific synergy depends upon cross-market correlation of customer preferences, differs when the synergy is cost-based versus differentiation-based, and can be negative even when the synergy is kept proprietary to a single firm. We also show that returns to imitating such a synergy may decline as it strengthens. At the industry level, we find that exploiting customer-specific synergies causes endogenous market convergence at a point that depends upon whether the synergy is cost-based or differentiation-based and whether it is imitated.

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3 citations in Web of Science®
1 citation in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:2016
Deposited On:21 May 2015 10:23
Last Modified:03 Mar 2017 01:00
Publisher:Wiley-Blackwell Publishing, Inc.
ISSN:0143-2095
Additional Information:This is the peer reviewed version of the following article: Schmidt, Jens; Makadok Richard; Keil, Thomas: Customer-specific synergies and market convergence, Strategic Management Journal März 2015; 10.1002/smj.2372, which has been published in final form at http://dx.doi.org/10.1002/smj.2372. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Publisher DOI:https://doi.org/10.1002/smj.2372
Other Identification Number:merlin-id:12010

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