Mass customization in an endogenous-timing game with vertical differentiation ¬リニ

a r t i c l e i n f o We study mass 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 customization by one or both firms occurs only if the quality difference is sufficiently large. Flexibility of timing in the customization stage sometimes enables the firms to achieve an outcome that is Pareto superior to that if they were constrained to simultaneous customization choices. Although the high quality firm is more likely to customize, in some circumstances the low quality firm can obtain an advantage by becoming the first and only firm to adopt customization. Mass customization (MC) is the use of flexible manufacturing systems to produce individually tailored products without significantly compromising cost efficiency. This concept was first coined in Davis (1987). As a business strategy, MC gathered remarkable momentum in the early 2000s when the technological advances in information technology facilitated the transfer of customer-provided specifications to manufacturing (Piller, 2002). Today, mass customization is offered by many producers in a wide variety of industries. 1 The best example of effective MC is the production facility at Dell Corporation. When a customer wants to buy a computer system, he/she goes to Dell's website and selects from a variety of options for memory size, processor speed, hard disk size, software , and other peripherals. Dell produces a computer system per customer's specifications and delivers it within three to five business days in most cases (Kraemer et al., 2000). Table 1 reports major MC adopters in five product categories. 2 Research on mass customization has mostly been descriptive, with a vast majority of publications being surveys and case studies (Franke 3 No generaliz-able quantitative research has been conducted thus far, as no large-scale microeconomic data is available, owing partially to protection of commercial information by producers. Another possible reason for the void of empirical research on MC is the small size of theoretical literature. As theory oftentimes generates interests and provides insights for empirical analysis, more theoretical studies of MC are warranted. The present paper adds to the small but growing literature (reviewed in Section 1.3) applying game-theoretical models to study mass customization. …