Firm scope and position moves: exploration, inertia, and crowding

Abstract We examine the effect of changes in a firm’s horizontal scope on its position moves, disentangling the effect of scope economies, exploration, inertia, and crowding. We argue that scope economies emanate from the contemporaneous breadth of a firm’s scope while exploration and inertia relate to the sequence of historical choices a firm makes about whether to change or maintain its scope. Our theory predicts that exploration routines (that promote position moves) and inertial tendencies (that deter them) evolve over time and that their effects are moderated by competitive crowding. Analysis of all US auto firms between 1895 and 1981 confirms these patterns, thereby reconciling existing findings from prior research and highlighting the advantages of an evolutionary approach through the lens of organizational sociology.