Product and service innovation and discontinuation in manufacturing and service firms in Europe

The purpose of this paper is to explore product/service innovation and discontinuation using the firm as a unit of analysis. A key objective of the paper is to compare the results between manufacturing and service firms.

A two-step production function approach is employed to examine first, a firm’s decision to innovate and second, a firm’s decision to discontinue products/services.

The results indicate that the factors affecting product innovation and discontinuation are similar for manufacturing and service firms, where innovation was significant for product/service discontinuation and process innovation was found to be important for innovations. Similarly, monopoly power was important for innovation in both industry types. However, there were also some underlying differences, particularly in relation to firm age and economic geography effects.

The conclusion of the paper is that it is not appropriate to assume that the process of product innovation and discontinuation will be identical across industry types.

This study is the first study in the literature that examines product/service discontinuation at the firm level and the relationship between innovation and product/service discontinuation using the firm as a unit of analysis. This study further adds to the under-researched (relative to manufacturing studies) area of service innovation.