A central question in strategy asks in which markets and segments a given firm should compete. Any answer to this question is based on an implicit theory of the scope of the firm, and any theory of the firm implies an answer. The economics literature contains several slightly different theories of the firm, and we here focus on one which is based on advantages of specialization and what could be described as “increasing returns to scale” in negotiations. We outline the theory and show how its recommendations are very similar to those of the RBV. There are, however, subtle differences and we highlight several of those.