Product Innovation in Services: a Framework for Analysis

Services now play a remarkably prominent role in modern economies. Not surprisingly, economists and marketing researchers have begun to turn their attention to the analysis of activities in the so-called tertiary sector. In this chapter we attempt to contribute to the effort of systematizing the analysis of service institutions by integrating perspectives from the economic analysis of institutions and property rights, on the one hand, and the economic analysis of retailing and distribution services, on the other hand. In so doing, we propose a set of evaluative criteria to be applied to the assessment of the evolution of service institutions, as well as a tableau for analyzing the emergence of various institutional forms. The tableau organizes the three primitive economic activities of production, distribution, and consumption on temporal and spatial dimensions. As such, the tableau applies the notion of relational constraints that have the property of reducing uncertainty and transaction costs, thus being welfare enhancing. The tableau and the evaluative criteria enable us to explore a range of issues, such as joint-ness of production and consumption, divided ownership of property rights, and the effects of technological progress that are inherent in the process of product innovation in services. [