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    Mass Customization with Vertically Differentiated Products

    Loginova, Oksana
    Wang, X. H. (X. Henry), 1962-
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    [PDF] MassCustomizationVerticallyDifferentiatedProducts.pdf (306.1Kb)
    Date
    2008
    Format
    Working Paper
    Metadata
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    Abstract
    We analyze a duopoly game in which products are initially differentiated in variety and quality. Each consumer has a most preferred variety and a quality valuation. Customization provides ideal varieties but has no effect on product qualities. The firms first choose whether to customize their products, then engage in price competition. We show that in equilibrium either both firms customize, only the higher quality firm customizes, or no firm customizes. Even if customization is costless, the firms might not customize. This happens when the quality difference between the firms is small. We explore how the total welfare changes with the fixed cost of customization. Interestingly, the relationship is not always monotonic. Contrasting with the situation when customization is not feasible, both consumer surplus and total welfare are higher when one or both firms customize.
    URI
    http://hdl.handle.net/10355/2391
    Part of
    Working papers (Department of Economics);WP 08-14
    Part of
    Economics publications
    Citation
    Department of Economics, 2008
    Rights
    OpenAccess.
    This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 License.
    Collections
    • Economics publications (MU)

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