A dynamic approach to optimizing a firm´s market scope

Our analytical model formulates the strategic decision of market scope as a dynamic deterministic optimization problem where the decision of market scope optimizes the firm´s overall performance on a finite planning horizon. This model captures a trade-off between profit and mortality risk when making a market scope decision. Furthermore, it accommodates the contingent nature of the scope decision by looking not only at the direct effect that the choice of scope can have on performance but also the indirect effect it has on performance via its impact on the level of competition and demand volatility faced by the firm. We translate the model´s theoretical insights into testable propositions, and explore possible ways to operationalize these propositions for empirical testing