Customization in an Endogenous-Timing Game with Vertical Differentiation
AbstractWe study mass 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 customization by one or both firms occurs only if the quality difference is sufficiently large. Flexibility of timing in the customization stage sometimes enables the firms to achieve an outcome that is Pareto superior to that if they were constrained to simultaneous customization choices. Although the high quality firm is more likely to customize, in some circumstances the low quality firm can obtain an advantage by becoming the first and only firm to adopt customization.
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Bibliographic InfoPaper provided by Department of Economics, University of Missouri in its series Working Papers with number 1304.
Date of creation: 05 Mar 2013
Date of revision:
Publication status: forthcoming in Economic Modelling
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
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