Hyperspecialization and Hyperscaling: A Resource-Based Theory of the Digital Firm

55 Pages Posted: 22 Sep 2021

See all articles by Gianluigi Giustiziero

Gianluigi Giustiziero

Frankfurt School of Finance & Management

Tobias Kretschmer

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management); Centre for Economic Policy Research (CEPR)

Deepak Somaya

University of Illinois at Urbana-Champaign - Department of Business Administration

Brian Wu

University of Michigan, Stephen M. Ross School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2021

Abstract

Digital firms tend to be both narrow in their vertical scope and large in their scale. We explain this phenomenon through a theory about how attributes of firms’ resource bundles impact their scale and specialization. We posit that highly scalable resource bundles entail significant opportunity costs of integration (versus outsourcing), which simultaneously drive “hyperspecialization” and “hyperscaling” in digital firms. Using descriptive theory and a formal model, we develop several propositions that align with observed features of digital businesses. We offer a parsimonious modeling framework for resource-based theorizing about highly scalable digital firms, shed light on the phenomenon of digital scaling, and provide insights into the far-reaching ways that technology-enabled resources are reshaping firms in the digital economy.

Keywords: digital firms, firm resources, opportunity costs, scalability, scale and scope

JEL Classification: L22, L23, L25

Suggested Citation

Giustiziero, Gianluigi and Kretschmer, Tobias and Somaya, Deepak and Wu, Brian, Hyperspecialization and Hyperscaling: A Resource-Based Theory of the Digital Firm (August 1, 2021). CEPR Discussion Paper No. DP16493, Available at SSRN: https://ssrn.com/abstract=3928790

Gianluigi Giustiziero (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany
60322 (Fax)

Tobias Kretschmer

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Deepak Somaya

University of Illinois at Urbana-Champaign - Department of Business Administration ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Brian Wu

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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