The past twenty years have witnessed the emergence of internet conglomerates fuelled by unprecedented levels of acquisitions. We provide a simple theoretical model of firm and market structure to shed light on this phenomenon. Each firm has a set of scarce capabilities and different markets value different capabilities. As a firm gains more capabilities valued by a given market, it becomes a stronger competitor in that market. We represent this information in firm and market hypergraphs and study the stable industry structures, where there no longer exists a profitable merger or demerger. We find that if markets begin to value additional capabilities, such as data about their customers or the ability to sell online, the resulting more-connected market structure can support larger firms in equilibrium. Moreover, the change is not smooth. There is a sharp phase transition in the potential size of the largest firms. We apply our framework to analyze consumer welfare and policy.
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