Scope, Scale and Competition: The 21st Century Firm

Scope, Scale and Competition: The 21st Century Firm

Abstract

We provide evidence that over the past 30 years, U.S. firms have expanded their scope of operations. Increases in scope and scale were achieved largely without increasing traditional operating segments. Scope expansion significantly increases valuation and is primarily realized through acquisitions and investment in R&D, but not through capital expenditures. We show that traditional concentration ratios do not capture this expansion of scope and are upward biased. Our findings point to a new type of firm that increases scope through related expansion, which is highly valued by the market.

Keywords: Firm scope, economies of scope, products, concentration,firm size.

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