Specializing in Generality: Firm Strategies When Intermediate Markets Work

Bocconi University Management Research Paper No. 7

Forthcoming in Organization Science

46 Pages Posted: 4 Dec 2018 Last revised: 10 Dec 2018

See all articles by Alfonso Gambardella

Alfonso Gambardella

Bocconi University - Department of Management and Technology

Raffaele Conti

UCP-Católica Lisbon School of Business and Economics

Elena Novelli

Bayes Business School (formerly Cass), City, University of London; City University London - The Business School; Bayes Business School (formerly Cass), City, University of London

Date Written: June 9, 2018

Abstract

This paper studies the relationship between two decisions shaping the organizational configuration of a firm: whether to make the upstream resources more general and deployable to more markets (vs. keeping them tailored to a few markets), and whether to trade with downstream firms as an upstream supplier of intermediate products and services (vs. directly entering downstream markets). While the literature has looked at these two decisions separately, we argue that they depend on each other. This has the important implication that they can generate organizational complementarities, inducing firms to implement them jointly. We are motivated in particular by the observation that an increasing number of firms invest in general upstream resources and exploit them as upstream suppliers of intermediate services or products— a strategy that we refer to as specialization in generality. Interestingly, the literature following the seminal work by Penrose (1959) and Nelson (1959) has highlighted the use of general upstream resources to enter new downstream markets. We identify the supply and demand conditions under which specialization in generality is instead more likely to emerge: lack of prior downstream assets, on the supply side, and a roughly equal distribution of buyers across intermediate markets (a “broad” demand), on the demand side. We test our predictions using a sample of firms in the U.S. laser industry between 1993 and 2001. A regulatory shock that increases the value of trading relative to downstream entry provides the setting for a quasi-natural experiment, which corroborates our theoretical predictions.

Keywords: technology generality, intermediate markets, technology trading, downstream entry

Suggested Citation

Gambardella, Alfonso and Conti, Raffaele and Novelli, Elena, Specializing in Generality: Firm Strategies When Intermediate Markets Work (June 9, 2018). Bocconi University Management Research Paper No. 7, Forthcoming in Organization Science, Available at SSRN: https://ssrn.com/abstract=3295610

Alfonso Gambardella (Contact Author)

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

Raffaele Conti

UCP-Católica Lisbon School of Business and Economics ( email )

Palma de Cima
Lisboa, 1649-023
Portugal

Elena Novelli

Bayes Business School (formerly Cass), City, University of London ( email )

United Kingdom

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Bayes Business School (formerly Cass), City, University of London ( email )

United Kingdom

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