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Technology Mergers and Acquisitions in the Presence of an Installed Base: A Strategic Analysis

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  • Qiu-Hong Wang

    (School of Information Systems, Singapore Management University, Singapore 188065)

  • Kai-Lung Hui

    (School of Business and Management, Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong)

Abstract

We study the strategic benefits of mergers and acquisitions (M&As) when competing information technology vendors sell different generations of the same product with different quality. We assume the new product arrives unexpectedly when an installed base of the old product exists. We show that the combination of consumers’ purchase history and heterogeneity leads to new demand complexity that gives rise to innovative product strategies. We find that shelving the old product is an important motivation for M&A. The acquirer may exercise static or intertemporal price discrimination depending on whether it can exercise upgrade pricing. M&A may speed up or slow down new product consumption, and it can lead to delayed new product introduction in some markets. However, it always increases the acquirer’s profit and can sometimes help maximize social welfare. We discuss relevant managerial and policy implications.

Suggested Citation

  • Qiu-Hong Wang & Kai-Lung Hui, 2017. "Technology Mergers and Acquisitions in the Presence of an Installed Base: A Strategic Analysis," Information Systems Research, INFORMS, vol. 28(1), pages 46-63, March.
    • Handle: RePEc:inm:orisre:v:28:y:2017:i:1:p:46-63
    DOI: 10.1287/isre.2016.0659
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