Giant companies stay on top because they’re both more productive and scalable than their competitors, according to research from Wharton and the School of Arts & Sciences.
2 min. read
New Penn research challenges a core assumption in economics: that the most successful companies achieve their dominance purely through superior productivity. Instead, the researchers highlight the important role of scalability—how well firms can grow as they add resources—in explaining why the largest companies stay on top.
By focusing on differences in how companies scale, Sergio Salgado, an assistant finance professor at the Wharton School, Joachim Hubmer, an assistant economics professor at the School of Arts & Sciences, and coauthors shed light on the varied ways that firms produce goods and expand.
“In the traditional view, we think of large companies like Amazon as simply more productive than others. But that doesn’t quite capture it,” says Hubmer. “Amazon is unique because it’s scalable, and that’s something that seems built into their technology.”
The researchers analyzed data from more than 4.3 million records of Canadian firms from 2001 to 2019—over 90% of the country’s private sector output. Their findings were further validated by comparing similar data from U.S. firms, which confirmed the scalability edge seen in the Canadian context.
While productivity grows with revenue, it plateaus for the largest firms, whereas scalability keeps climbing.
Companies that achieved high scalability tended to spend more strategically on various intermediate inputs like raw materials or outsourced labor, leading to stronger growth outcomes.
Even within the same industries, the researchers observed that companies vary widely in their scalability.
The implications of this study are far-reaching. For investors, the scalability factor can guide better investment strategies by focusing on companies with growth-oriented production methods. For policymakers, it raises questions about how to structure taxes, incentives, and financing policies to support scalability, especially for companies that might struggle under traditional financial limits.
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