Subject category:
Strategy and General Management
Published by:
Harvard Business Publishing
Version: 20 April 1995
Length: 15 pages
Data source: Published sources
Abstract
Describes analyses that determine the appropriate limit to the scope of the firm. Examines both the production cost justification for firm diversification - economies of scope and shared resources, and the governance cost justification for including transactions inside the hierarchy rather than contracting for them on the market - transaction costs and agency theory. Concludes by identifying the line between corporate strategy and firm scope.
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Abstract
Describes analyses that determine the appropriate limit to the scope of the firm. Examines both the production cost justification for firm diversification - economies of scope and shared resources, and the governance cost justification for including transactions inside the hierarchy rather than contracting for them on the market - transaction costs and agency theory. Concludes by identifying the line between corporate strategy and firm scope.