Scale, Scope, Ownership Changes, and Performance

Abstract

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.

Keywords: multi-product firms, production organization, franchising, services, acquisitions, market power

JEL Classification: L1, L2, L8, M21