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    Customization with Vertically Differentiated Products

    Loginova, Oksana
    Wang, X. H. (X. Henry), 1962-
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    [PDF] CustomizationVerticallyDierentiatedProducts.pdf (203.8Kb)
    Date
    2009
    Format
    Working Paper
    Metadata
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    Abstract
    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.
    URI
    http://hdl.handle.net/10355/2387
    Part of
    Working papers (Department of Economics);WP 09-03
    Part of
    Economics publications
    Citation
    Department of Economics, 2009
    Rights
    OpenAccess.
    This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 License.
    Collections
    • Economics publications (MU)

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