This paper discusses the effect of technological innovation on consump- tion side. Apart from Quality effect (improvement in the quality of service or reduction in constant-quality price), there is another ”Consolidation effect”. This takes form of more features (which can be enjoyed together) being included in the same service. This effect is driven by the Time-constraint in form of technological limit on consumption per unit of time. The effect is stronger if features being bundled together are complementary to each other. Another aspect is shown by offering an alternative explanation of Engel’s Law. If complementarity of a sector is affected by technological externalities, the income share spent on that sector changes. The direction of movement depends whether the tech progress has developed ”enhancing” (positive) or ”impeding” (negative) complements. Service sector has more of these en- hancing complements and hence income share spent on service sector has gone up.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
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Find related papers by JEL classification: D62 - Microeconomics - - Welfare Economics - - - Externalities O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives L80 - Industrial Organization - - Industry Studies: Services - - - General
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