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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/29474
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| Title: | Mass Customization with Vertically Differentiated Products |
| Authors: | Loginova, Oksana - University of Missouri
Wang, X. Henry - University of Missouri |
| Keywords: | customization, horizontal differentiation, vertical differentiation |
| Issue Date: | 2008 |
| Series/Report no.: | Net Institute Working Paper;08-33 |
| 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/2451/29474 |
| Appears in Collections: | NET Institute Working Papers Series
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