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.
|Date of creation:||31 Jan 2009|
|Date of revision:|
|Publication status:||Published in Journal of Economics and Management Strategy 2011|
|Contact details of provider:|| Postal: |
Phone: (573) 882-0063
Fax: (573) 882-2697
Web page: http://economics.missouri.edu/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:umc:wpaper:0903. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Stratton)
If references are entirely missing, you can add them using this form.