Capability Accumulation and Conglomeratization in the Information Age

45 Pages Posted: 23 Mar 2016 Last revised: 14 Jan 2022

See all articles by Jun Chen

Jun Chen

Renmin University of China - School of Business

Matthew Elliott

University of Cambridge

Andrew Koh

University of Cambridge

Abstract

The past twenty years have witnessed the emergence of internet conglomerates fueled by acquisitions. We build a simple model of network formation to study this. Following the resource-based view of competitive advantage from the management literature we endow firms with scarce capabilities which drive their competitiveness across markets. Firms can merge to combine their capabilities, spin-off new firms by partitioning their capabilities, or procure unassigned capabilities. We study stable industry structures (stable networks) in which none of these deviations are profitable. We find an upper and lower bound on the size of the largest firm, and show that as markets value more of the same capabilities abrupt increases in these bounds occur.

JEL Classification: D40, D85, L10

Suggested Citation

Chen, Jun and Elliott, Matthew and Koh, Andrew, Capability Accumulation and Conglomeratization in the Information Age. Available at SSRN: https://ssrn.com/abstract=2753566 or http://dx.doi.org/10.2139/ssrn.2753566

Jun Chen

Renmin University of China - School of Business ( email )

59 Zhongguancun Street, Haidian District
Beijing, 100872
China

Matthew Elliott (Contact Author)

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

Andrew Koh

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

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