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

Author

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  • Kretschmer, Tobias
  • Giustiziero, Gianluigi
  • Somaya, Deepak
  • Wu, Brian

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.

Suggested Citation

  • Kretschmer, Tobias & Giustiziero, Gianluigi & Somaya, Deepak & Wu, Brian, 2021. "Hyperspecialization and Hyperscaling: A Resource-based Theory of the Digital Firm," CEPR Discussion Papers 16493, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16493
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    2. Wang, Yuxin & Zhou, Junting & Zhang, Rui, 2025. "Market accessibility, agglomeration, and spatial location of digital enterprises," International Review of Economics & Finance, Elsevier, vol. 98(C).
    3. Bohan, Sarah & Tippmann, Esther & Levie, Jonathan & Igoe, Josephine & Bowers, Blake, 2024. "What is scaling?," Journal of Business Venturing, Elsevier, vol. 39(1).
    4. Tang Wang & Dirk Libaers & Hao Jiao, 2025. "CEO power and strategic persistence: evidence from post-IPO firms in China," Small Business Economics, Springer, vol. 64(4), pages 2197-2222, April.
    5. Kristina McElheran & Mu-Jeung Yang & Zachary Kroff & Erik Brynjolfsson, 2025. "The Rise of Industrial AI in America: Microfoundations of the Productivity J-curve(s)," Working Papers 25-27, Center for Economic Studies, U.S. Census Bureau.
    6. Somaya, Deepak & You, Jingya, 2024. "Scalability, venture capital availability, and unicorns: Evidence from the valuation and timing of IPOs," Journal of Business Venturing, Elsevier, vol. 39(1).
    7. Ellis, S. James & Khanagha, Saeed & Aalbers, Rick & Tuertscher, Philipp, 2025. "Middle managers at the crossroads: Navigating legitimacy tensions in pursuit of radical innovation in nascent ecosystems," Research Policy, Elsevier, vol. 54(8).
    8. Brown, Ross & Mawson, Suzanne & Rocha, Augusto & Rowe, Alex, 2025. "Looking inside the ‘black box’ of digital firm scaling: An ethnographically informed conceptualisation," Journal of Business Research, Elsevier, vol. 186(C).
    9. Su, Zhenqing & Park, Keun-sik & Liu, Ziyang & Su, Miao, 2025. "Key factors for non-polar use of the Northern Sea Route: A Korean point of view," Journal of Transport Geography, Elsevier, vol. 124(C).
    10. Yan Zhao & Changxu Guo & Xuanji Chen, 2025. "Inter-Organizational Connectivity, Digital Transformation, and Firm Ambidextrous Innovation: A Coupled Perspective on Innovation Ecosystems and Digitalization," Sustainability, MDPI, vol. 17(14), pages 1-26, July.
    11. Jia, Yibo & Cui, Li & Su, Jingqin & Wu, Lin & Akter, Shahriar & Kumar, Ajay, 2024. "Digital servitization in digital enterprise: Leveraging digital platform capabilities to unlock data value," International Journal of Production Economics, Elsevier, vol. 278(C).
    12. Sanasi, Silvia, 2025. "Structuring experimentation: Implementing Growth Hacking in new ventures," Journal of Business Research, Elsevier, vol. 188(C).
    13. Gala, Kaushik & Schwab, Andreas & Mueller, Brandon A., 2024. "Star entrepreneurs on digital platforms: Heavy-tailed performance distributions and their generative mechanisms," Journal of Business Venturing, Elsevier, vol. 39(1).
    14. Li, Zhiyi & Hu, Boqiang & Bao, Yifei & Wang, Yifei, 2025. "Supply chain digitalization, green technology innovation and corporate energy efficiency," Energy Economics, Elsevier, vol. 142(C).
    15. Scuotto, Veronica & Tzanidis, Theofilos & Murray, Alan & Manlio, Del Giudice, 2025. "Growth hacking: Leveraging hyper-scalability, hyper-specialization, and human-centric strategies for competitive advantage," Journal of Business Research, Elsevier, vol. 190(C).
    16. Ruiqing Cao & Abhishek Bhatia, 2025. "How Founder Expertise Shapes the Impact of Generative Artificial Intelligence on Digital Ventures," Papers 2511.06545, arXiv.org.
    17. Simon C. Parker & Thomas Åstebro & David B Audretsch & Robert Blackburn & Andrew Burke & Alex Coad & Marc Cowling & Per Davidsson & Michael Fritsch & Francis Greene & Paul D. Reynolds & Roy Thurik, 2024. "“Remembering David J Storey, a pioneer of the entrepreneurship field”," Small Business Economics, Springer, vol. 62(1), pages 1-21, January.
    18. Ga-Young Kim & Woo-Jin Lee & Byungchul Choi & Yong Kyu Lew, 2025. "Fostering collaborative opportunities for AI start-ups: The case of a hybrid business incubator in Seoul," The Journal of Technology Transfer, Springer, vol. 50(2), pages 552-581, April.
    19. Ayadi, Imen & Abderrahman, Jahmane, 2025. "The impact of economic policy uncertainty and digital integration on ESG practices in European companies," Research in International Business and Finance, Elsevier, vol. 76(C).

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    Keywords

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    JEL classification:

    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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