Customization in an Endogenous-Timing Game with Vertical Â Differentiation
AbstractWe study customization in a duopoly game in which the firms' products have different qualities. Whether customization choices are made simultaneously or sequentially is endogenously determined. Specifically, the customization stage of the game involves two periods. Each firm either selects its product type in period 1 or postpones this decision to period 2. We show that both quality and endogenous timing play important roles in determining the equilibrium outcome. Customization occurs only if the quality difference is sufficiently large. Endogeneity of timing in the customization stage sometimes enables the firms to achieve an outcome that is Pareto superior to that if they were to make their customization choices simultaneously. Although the higher quality firm is more likely to customize, in some circumstances endogenous timing allows the lower quality firm to obtain an advantage that it would not have under simultaneous customization choices.
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Bibliographic InfoPaper provided by Department of Economics, University of Missouri in its series Working Papers with number 1008.
Date of creation: 02 Jul 2010
Date of revision:
customization; horizontal differentiation; vertical differentiation; endogenous timing;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-24 (All new papers)
- NEP-BEC-2010-07-24 (Business Economics)
- NEP-COM-2010-07-24 (Industrial Competition)
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