Customization with Vertically Differentiated Products
We study an asymmetric duopoly market in which the firms' products are initially differentiated in both variety and quality. Each consumer has a most preferred variety and a quality valuation. Customization provides ideal varieties for consumers but has no effect on product qualities. The firms first choose whether to customize their products, then engage in price competition. For the customization stage we consider two different games: the simultaneous-move game and the endogenous-timing game. In the latter, whether customization choices are made simultaneously or sequentially is endogenously determined. We show that both quality and the timing of customization choices play important roles in determining the equilibrium outcome. Customization occurs only if the quality difference is sufficiently large. Endogenous timing 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, endogenous timing sometimes enables the lower quality firm to obtain an advantage that it would not have in the simultaneous-move game.
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Volume (Year): 20 (2011)
Issue (Month): 2 (June)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Amir, Rabah & Stepanova, Anna, 2006.
"Second-mover advantage and price leadership in Bertrand duopoly,"
Games and Economic Behavior,
Elsevier, vol. 55(1), pages 1-20, April.
- Rabah Amir & Anna Stepanova, 2000. "Second-Mover Advantage and Price Leadership in Bertrand Duopoly," CIE Discussion Papers 2000-10, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
- AMIR, Rabah & STEPANOVA, Anna, 2004. "Second-mover advantage and price leadership in Bertrand duopoly," CORE Discussion Papers 2004037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Alexei Alexandrov, 2008. "Fat Products," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 67-95, March.
- Bernhardt, Dan & Liu, Qihong & Serfes, Konstantinos, 2007. "Product customization," European Economic Review, Elsevier, vol. 51(6), pages 1396-1422, August.
- Rajiv Dewan & Bing Jing & Abraham Seidmann, 2003. "Product Customization and Price Competition on the Internet," Management Science, INFORMS, vol. 49(8), pages 1055-1070, August.
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