Overview
This series asks whether custom software that can be reused across a firm's establishments changes the economics of firm scope and concentration. U.S. Census data show adoption rises with establishment count, while software's capital-expenditure share falls among adopters; a calibrated model connects those margins through cost sharing, factor substitution, and adoption selection. UK SME evidence adds the implementation, skills, trust, finance, regional, and sector conditions that limit diffusion. The result is a bounded scaling mechanism, not proof that software alone caused historical concentration.
Learning outcomes
- Custom software can create increasing returns to firm scope when one investment is reusable across establishments.
- Census data show adoption rises with scope, while adopters' software share of capital spending falls; these are different margins.
- The calibrated price counterfactual raises baseline concentration, but explains only part of the historical increase.
- Skills, finance, trust, fit, and regional capacity determine whether technical scalability becomes broad adoption.
Keywords
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PlansFAQ
How can custom software increase a firm's scope?
Custom software can increase a firm's scope when one investment is reusable across several establishments, lowering its effective cost per site while labor and physical capital remain largely site-specific.
Why can software's share of capital spending fall as a firm grows?
Software's share can fall because total capital spending on buildings, equipment, and other site-specific inputs grows faster than the firm's shared software investment, even when software spending rises in dollars.
Does custom software necessarily increase market concentration?
No, custom software does not necessarily increase market concentration. The aggregate effect depends on which firms adopt, how switchers compete, and how broadly the capability diffuses.
What limits the scaling benefits of reusable software?
The benefits are limited by licensing, site-specific adaptation, management costs, demand cannibalization, and barriers involving skills, finance, trust, infrastructure, and implementation.