Diversified firms: existence and behaviors
Name
diversified-firms-existence-and-behaviors.pdf
Description
Published version
Size
248.7 KB
Format
Adobe PDF
Checksum (MD5)
43bf64cd268cd891636d859c814b8342
Author(s)
Wernerfelt, Birger
Date Issued
2021
Journal
Journal of Institutional Economics
Publisher
Cambridge University Press (CUP)
Citation
Wernerfelt, Birger. 2021. "Diversified firms: existence and behaviors." Journal of Institutional Economics.
Version
Final published version
Abstract
Abstract
We propose a micro-founded theory of diversified firms. The theory suggests that diversified firms exist because they allow better deployment of factors that, because of sub-additive contracting costs, are hard to trade in fractions. Firms diversify into industries in which these factors are more productive than any alternatives available in the factor market. Like markets, diversified firms allow specialization by enabling factors to be used on a larger scale. The individual businesses making up a diversified firm exhibit specific similarities in behavior.
We propose a micro-founded theory of diversified firms. The theory suggests that diversified firms exist because they allow better deployment of factors that, because of sub-additive contracting costs, are hard to trade in fractions. Firms diversify into industries in which these factors are more productive than any alternatives available in the factor market. Like markets, diversified firms allow specialization by enabling factors to be used on a larger scale. The individual businesses making up a diversified firm exhibit specific similarities in behavior.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution 4.0 International license
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1017/S1744137421000709
