How Markets Work and Fail, and What to Make of Them

How Markets Work and Fail, and What to Make of Them

New Horizons in Institutional and Evolutionary Economics series

In this thought-provoking book, Bart Nooteboom offers a radical critique of the principal intellectual and moral assumptions underlying economic science, unravelling the notion of markets: how they work and fail, and how they may be redirected to better serve us.

Chapter 4: Variety of industries

Subjects: business and management, corporate governance, organisational innovation, organisation studies, economics and finance, evolutionary economics


The functioning of markets depends on a range of conditions. Those vary, in particular, between industries, so that a policy for markets should be informed by an understanding of differences between industries. Here I employ a well-known scheme of the value chain, to characterize industries and their differences. For suppliers we are inclined to think of producers in the sense of manufacturing. However, many suppliers do not engage in any physical production. Traders, for example, trade in goods produced by others. By ‘product’ I mean, as is customary in economics, anything that offers value added to what was purchased as an input. In that sense, products include physical products, called ‘goods’, as well as services. It is crucial to have a proper understanding of services, for three reasons. First, as prosperity grew and basic material needs were fulfilled, the share of services providing non-material utility in economies has increased. Second, the financial and economic crisis is deeply connected with financial services. Third, much of the debate on deregulation or privatisation concerns public or semi-public services (health, transport, and so on). A well-known characteristic of many services, often used as a defining characteristic (Gronroos 2000), is that product and production process are integrated, coinciding in time and place, and indeed the process, or part of it (the ‘front office’ of a service process, which stands in direct contact with the customer), is the product and that customers contribute to production.

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