Diversification, Proliferation, and Firm Performance in the US Music Industry

This paper links insights from the strategic management literature to concepts from organizational ecology and organization theory to present a coherent framework to study the effects of diversification and proliferation on competitive performance. We conceptualize the market as a multi-dimensional Lancastrian space based on product characteristics: categories are a means to organize agents' perception of this space; therefore, they are not just basic to consumer perception but also to the strategic choices of producers. Two core strategies are entering new categories (diversification) and extending the firm's offerings in specific categories without altering the firm's scope (proliferation). Using data on record companies in the US music industry, we analyze these strategies' effects on firm performance and examine how the properties of the focal categories moderate these relationships.