Location of engineering and designer services in the information economy

This paper presents a case study of a naval architecture firm in Western Norway, which trades its services electronically. The paper goes on to analyze the market entry and location decision of such entrepreneurs by means of a theoretical model that builds on insights from Williamson’s theory of market structure and relation-specific investment. I introduce a governance cost function that depends on the distance between the two contractual parties and find that there exists a wage level above which no potential entrepreneur would set up a designer firm, and a critical distance between the designer firm and the customer, beyond which no designer firm would be established. Investment in ICT extends this distance, but it is unlikely to eliminate it. The critical distance and the critical wage level depend on the cost of fabricating the designed e.g. vessel.