Competition

Corporate diversification is a core topic in Financial Economics. The desire to better understand why a firm elects to diversify as opposed to increase in scale is the motivation of this dissertation. To accomplish this goal I test a number of dynamic models of corporate diversification, with similar predictions, to better understand the dynamic choice to diversify. I find that several previously untested models do indeed provide insight as to why a firm would diversify (Essay One). In particular two firm traits, firm talent which I use the proxy of organization capital and asset specificity which I use the proxy of asset tangibility, are strongly related to propensity of the firm to engage in corporate diversification for the first time.

In classical economic theory, competition consisted of buyers outbidding
one another and sellers underbidding one another; and it was
argued that, for sufficiently large markets, competition would yield uniform
prices in equilibrium. Neoclassical economists subsequently investigated
the role of preferences in trading, concluding that, in equilibrium,
each trader would obtain the most desirable commodity bundle
affordable at prevailing prices, given his initial resources. In the
process, however, neoclassical economists ultimately made price uniformity
an assumption, assumed individuals incapable of influencing prices
under any circumstances, and redefined competition to mean price-taking
behavior. By thus denying individuals any active role in price determination,
an inconsistency was introduced into the theory. This thesis
eliminates the inconsistency by combining classical competitive behavior
and the neoclassical insights into the role of preferences, to produce an
axiomatic theory of competition within which the characteristics of equilibrium
(uniform prices and utility maximization) are rigorously derived.