Organizational Competencies and the Boundaries of the Firm

Abstract

The boundaries of the firm have two fundamental dimensions. A first one concerns the scope and limits of expansion of firms within the industry (or industries) where they operate. An explanation of the boundaries, in this sense, overlaps with the explanation of so-called ‘market structures’. Why is production in some industries highly concentrated and much less so in others? What makes the difference between, say, aerospace, pharmaceutical or mainframe computers, on the one hand, and garments or shoemaking, on the other? Leaving aside regulatory measures, such as antitrust legislations, what prevents industrial production from being monopolized within a single firm? Along this dimension the boundaries of the firm over time are set by the “forces generating and limiting concentration” in the evolution of each industry (Nelson and Winter (1982); see also Dosi et al. (1993)).