Capability accumulation and conglomeratization in the information age

Jun Chen, Matthew Elliott and Andrew Koh

Journal of Economic Theory, 2023, vol. 210, issue C

Abstract: The past twenty years have witnessed the emergence of internet conglomerates fueled by acquisitions. We build a simple model of network formation to study this. Following the resource-based view of competitive advantage from the management literature we endow firms with capabilities which drive their competitiveness across markets. Firms can merge to combine their capabilities, spin-off new firms by partitioning their capabilities, or procure unassigned capabilities. We study stable industry structures (stable networks) in which none of these deviations are profitable. We find an upper and lower bound on the size of the largest firm, and show that as markets value more of the same capabilities abrupt increases in these bounds occur.

Keywords: Network formation and analysis: theory; Market structure; Firm strategy; Market performance (search for similar items in EconPapers)
JEL-codes: D85 L10 L11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:210:y:2023:i:c:s0022053123000431

DOI: 10.1016/j.jet.2023.105647

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