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Product Switching Cost and Strategic Flexibility

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  • Myong-Hun Chang

Abstract

This paper examines the equilibrium degree of flexibility adopted by firms competing in oligopolistic product markets in which the value of flexibility arises from the initial presence of uncertainty over consumer preferences and its eventual resolution. The equilibrium choice of flexible mode depends on the following factors: (1) the cost of switching product design in response to revealed consumer preferences, (2) the difference in the acquisition costs of the flexible and dedicated modes, and (3) the precision of the ex ante information held by the firms regarding consumer preferences. The relationship between these factors and the equilibrium choice of modes is fully characterized. Copyright (c) 1998 Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 7 (1998)
Issue (Month): 3 (09)
Pages: 461-488

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Handle: RePEc:bla:jemstr:v:7:y:1998:i:3:p:461-488

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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Cited by:
  1. Kwon, Chul-Woo, 2013. "An optimal production method for penetrating foreign markets: Standardization, localization, and flexible technology," Economic Modelling, Elsevier, vol. 33(C), pages 398-406.

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