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Customization in an Endogenous-Timing Game with Vertical Differentiation

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Abstract

We 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.

Suggested Citation

  • Oksana Loginova & X. Hnery Wang, 2010. "Customization in an Endogenous-Timing Game with Vertical Differentiation," Working Papers 1008, Department of Economics, University of Missouri.
  • Handle: RePEc:umc:wpaper:1008
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    File URL: https://economics.missouri.edu/working-papers/2010/wp1008_loginova_wang.pdf
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    References listed on IDEAS

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    3. Yuanzhu Lu, 2006. "Endogenous Timing in a Mixed Oligopoly with Foreign Competitors: the Linear Demand Case," Journal of Economics, Springer, vol. 88(1), pages 49-68, June.
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    5. Edward C. Prescott & Michael Visscher, 1977. "Sequential Location among Firms with Foresight," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 378-393, Autumn.
    6. Oksana Loginova & X. Henry Wang, 2011. "Customization with Vertically Differentiated Products," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 475-515, June.
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    14. Oksana Loginova, 2010. "Brand familiarity and product knowledge in customization," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(3), pages 297-309.
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    1. Oksana Loginova, 2010. "Brand familiarity and product knowledge in customization," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(3), pages 297-309.

    More about this item

    Keywords

    customization; horizontal differentiation; vertical differentiation; endogenous timing;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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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