A Mixture or a Compound? Community-Level Antecedents of Firms’ Category-Spanning Strategies.

Abstract

This dissertation examines community-level antecedents of firms’ market diversification and product differentiation strategies using the concept of category spanning. Exploiting novel and extensive data on the restaurant industry in a large metropolitan statistical area, I find a contrasting effect of economic and social status of consumer communities on firms’ market diversification. Results show a negative effect of residents’ income levels and a positive effect of their education levels on the business scope of the restaurants in a focal town. Also, results from a computational text analysis of every word used in the menus of the sample restaurants suggest that it is educated social elites, culturally omnivorous and seeking novelty, who encourage firms to engage in product hybridization. Next, category population is found to have curvilinear relationships with firms’ category spanning. Results suggest that category population has an inverted U-shaped association with firms’ diversification while it has a U-shaped association with product hybridization. Examining the full spectrum of the demand side and the competitive and institutional pressures arising from category population with a novel theory and operationalization of spanning, this dissertation complements the traditional focus in strategy research on the internal determinants of boundary spanning and contributes to understanding sociological and contextual factors influencing the development of firms’ sustainable competitive advantages. The study also has important theoretical and practical implications for questions ranging from the nuanced effects of the demand and competition of local communities on firm strategy to the enduring existence of different types of category spanners.