Scale, Scope, Ownership Changes, and Performance
Cornell University - School of Hotel Administration
University of Michigan - Stephen M. Ross School of Business
University of Michigan at Ann Arbor - The Stephen M. Ross School of Business
September 20, 2011
Estimating how scale and scope affect the performance of multi-product firms has been a challenge. We argue that because franchised chains are fundamentally single-product entities, we can use data on franchised chains and their parents to clearly distinguish scale and scope, and assess their effects, and those of ownership changes, on chain performance. Controlling for chain fixed effects and other factors; we find positive scale effects within chains. For parent company scope (the number of other chains of the parent) we find a negative rather than positive effect. We also find a reduction in the chain’s number of outlets, but no change in sales per outlet, after a chain is acquired by a new parent. Overall, our results suggest that acquisitions are disruptive, as multi-chain parents try to reduce competition among their chains/products.
Number of Pages in PDF File: 50
Keywords: multi-product firms, production organization, franchising, services, acquisitions, market power
JEL Classification: L1, L2, L8, M21working papers series
Date posted: September 20, 2011
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