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A THEORY OF FIRM SCOPE

Author(s)
Hart, Oliver; Holmstrom, Bengt
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.

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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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Abstract
The formal literature on firm boundaries has assumed that ex post conflicts are resolved through bargaining. In reality, parties often simply exercise their decision rights. We develop a model, based on shading, in which the use of authority has a central role. We consider two firms deciding whether to adopt a common standard. Nonintegrated firms may fail to coordinate if one firm loses. An integrated firm can internalize the externality, but puts insufficient weight on employee benefits. We use our approach to understand why Cisco acquired StrataCom, a provider of new transmission technology. We also analyze delegation.
Date issued
2010-05
URI
http://hdl.handle.net/1721.1/58806
Department
Massachusetts Institute of Technology. Department of Economics
Journal
Quarterly Journal of Economics
Publisher
MIT Press
Citation
Hart, Oliver, and Bengt Holmstrom. “A Theory of Firm Scope.” Quarterly Journal of Economics 125.2 (2010): 483-513. © 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Version: Final published version
ISSN
0033-5533
1531-4650

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