Mass-Customization Strategies in a Multi-Market Oligopoly
(A2022-107749)

AUTHORS

Dinah Cohen-Vernik, University of Houston Downtown; Amit Pazgal, Rice University

ABSTRACT

In recent times, we witnessed a dramatic shift from mass production to mass customization. Today, nearly all consumers expect some level of customization in the products they purchase, and brands selling anything from dress shirts to consumer packaged goods are offering customized products. While the existing literature has mainly focused on customizing firms' pricing decisions in a duopoly, we take a broader perspective: we investigate the interplay between firms’ pricing and customization range decisions in a multi-market oligopoly. We find that a-priori symmetric firms may employ asymmetric customization and pricing strategies in equilibrium. We explain how our model's richer market structure and more realistic (as compared to the existing literature) two-part customization cost structure are necessary to understand firms' customization strategies and pricing decisions. We also demonstrate how the technological ability to offer customized products may generally be detrimental to firms’ profits.