The Impact of the Internet on Experience Services and the Cost of Information : An Updated Conceptual Model of Innovation vs. Imitation and Firm Performance in Services

The extant service innovation literature suggests the high cost of an information search, when evaluating a new service provider, creates switching costs that hold customers hostage, allowing first-movers to recoup their investments and sustain an advantage. We utilize Transaction Cost Economics as a theoretical foundation to expand the service innovation literature by examining the Internet’s impact on the cost of information. We propose that as a result of the Internet, experience services offered by service firms have largely become search services, with lower levels of information asymmetry. We also suggest that the Internet has had little impact on information costs related to firms that offer largely credence services. These services will continue to exhibit higher levels of information asymmetry. Finally, we present a moderated model of innovation vs. imitation strategies that suggests that firms offering search services will increase firm performance through imitation, while credence firms will increase firm performance through innovation strategies