Essays on Firm Dynamics across High-Technology Specialized Markets

Abstract

This essay examines the role of spinoffs in addressing diseconomies of scope when firms expand into differentiated product markets. The first chapter gives an overview of the U.S. medical laser industry as a unique setting from which I build my structural model. In the second chapter, I study the operational tradeoffs between scale and scope that drive spinoff decisions independent of market power considerations. I then provide a set of preliminary case studies to establish the significance of the patent ownership data refined in 2024, to be taken over to my subsequent projects.A key contribution is that I endogenize shifts in firms' organizational structure as part of their optimal strategy, departing from the current focus on mergers in the endogenous product choice literature. I leverage a novel dataset to accurately measure product differences between firms' origin and branch markets in terms of laser type (wavelength) and quality. My estimates suggest that, without spinning off, firms incur 70\% higher fixed costs to produce branch market qualities that are highly differentiated from those of the origin. Firms also enjoy 10% fixed cost discounts for branch markets adjacent to their origin markets. Counterfactuals simulating no-spinoff scenarios reveal a 17.9% drop in total firm profit and a 7.6% decrease in overall welfare. At the market level, spinoffs are crucial for facilitating entry and competition in markets with one or no origin firms, as these experience a 9.3% decrease in consumer surplus when spinoffs are prohibited. In a monopolist setting, firm profit drops by 5.73%, while the fixed cost accrued increases by 59.1%.