Hyperspecialization and Hyperscaling: A Resource-based Theory of the Digital Firm

Tobias Kretschmer, Gianluigi Giustiziero, Deepak Somaya and Brian Wu

No 16493, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Digital firms tend to be both narrow in their vertical scope and large in their scale. We explain this phenomenon through a theory about how attributes of firms’ resource bundles impact their scale and specialization. We posit that highly scalable resource bundles entail significant opportunity costs of integration (versus outsourcing), which simultaneously drive “hyperspecialization†and “hyperscaling†in digital firms. Using descriptive theory and a formal model, we develop several propositions that align with observed features of digital businesses. We offer a parsimonious modeling framework for resource-based theorizing about highly scalable digital firms, shed light on the phenomenon of digital scaling, and provide insights into the far-reaching ways that technology-enabled resources are reshaping firms in the digital economy.

Keywords: Digital firms; Scalability; Opportunity costs; Scale and scope; Firm resources (search for similar items in EconPapers)
JEL-codes: L22 L23 L25 (search for similar items in EconPapers)
Date: 2021-08
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Journal Article: Hyperspecialization and hyperscaling: A resource‐based theory of the digital firm (2023)
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