Service markets and competition

Abstract The production and delivery of services differ from manufacturing in ways which have a significant impact on the nature of market competition. Contracts for manufactured goods are centered around a clearly defined junction between production and use, made possible by the properties of tangibility and portability of tangible goods, at which point responsibility for use, operation and consumption of the product is transferred from producer to customer, along with ownership. Service operations, by contrast, involve a lack of inventories and portability, customer contact, joint production, customer‐specific inputs, and intangibility in varying degrees. Moreover, service operations are either entirely post contractual or interlinked with the contracting process. As a result, the very nature of service markets and contracting depends on the characteristics of the service operation. While the operational consequences of service characteristics have been explored quite widely, there is less understanding of the special features of service competition and its implications for service strategy. We provide a framework for describing, analyzing and explaining service competition and review some old and new models which address the special features of service markets.