Brand Familiarity and Product Knowledge in CustomizationAbstract: This paper challenges the assumption commonly used in the theoretical literatureon customization that consumers always get their ideal varieties when theypurchase a customized product. I adopt Hotelling's horizontal diffierentiation modelwith two firms competing for a continuum of consumers. Each consumer has amost preferred variety and possesses a certain level of category-specific knowledge.Initially, the firms produce standard products located at the end points of the varietyinterval. Suppose one of the firms offers customization. Consumers familiarwith the brand can easily transfer their needs into appropriate characteristics ofthis brand. Consumers unfamiliar with the brand have difficulty in expressing theirpreferences. Category-specific knowledge is crucial here. Knowledgeable consumersare more capable of analyzing information than less knowledgeable ones, and theproducts they design better match their preferences. The game runs as follows.First, the firms simultaneously decide whether to offer customization, then engagein price competition. I show that while customization makes the products less differentiated, the frictions introduced into consumer co-design activities relax price competition. As a result, customization by one of the firms occurs in equilibrium
No abstract is available for this item.
|Date of creation:||31 Jan 2009|
|Publication status:||Published in International Journal of Economic Theory 2010|
|Contact details of provider:|| Postal: 118 Professional Building, Columbia, MO 65211|
Phone: (573) 882-0063
Fax: (573) 882-2697
Web page: http://economics.missouri.edu/
More information through EDIRC
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.:
- Neeraj Arora & Xavier Dreze & Anindya Ghose & James Hess & Raghuram Iyengar & Bing Jing & Yogesh Joshi & V. Kumar & Nicholas Lurie & Scott Neslin & S. Sajeesh & Meng Su & Niladri Syam & Jacquelyn Thom, 2008. "Putting one-to-one marketing to work: Personalization, customization, and choice," Marketing Letters, Springer, vol. 19(3), pages 305-321, December.
- Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
- 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.
When requesting a correction, please mention this item's handle: RePEc:umc:wpaper:0905. 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: (Valerie Kulp)
If references are entirely missing, you can add them using this form.