Capability Accumulation and Conglomeratization in the Information Age

The past twenty years have witnessed the emergence of internet conglomerates fueled by acquisitions. We build a simple theoretical model to study this. Following Wernerfelt (1984) we endow firms with scarce competencies which drive their competitiveness across markets. Firms can merge to combine their competencies, spin-off new firms by partitioning their competencies, or procure unassigned competencies. We study stable industry structures 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 competencies abrupt increases in these bounds occur.