Product customization

Dan Bernhardt, Qihong Liu, Konstantinos Serfes

Research output: Contribution to journalArticle

Abstract

The advent of the Internet has revolutionized the way companies advertise, develop and distribute products. Firms can now customize their advertising messages and products to the particular characteristics and needs of customers. Customers themselves can create their own products. We investigate investments by firms in product-customization capabilities within a duopoly model of horizontal product differentiation. We find that (i) if brand name effects are not too strong, one firm emerges as a leader in product customization-firms make asymmetric investments in product-customization technologies in order to reduce price competition, (ii) if brand name effects are strong, both firms make extensive investments in product customization, and (iii) the possibility of product customization can raise industry profits if brand names are weak, but not when they are strong.

Original languageEnglish (US)
Pages (from-to)1396-1422
Number of pages27
JournalEuropean Economic Review
Volume51
Issue number6
DOIs
StatePublished - Aug 1 2007

Keywords

  • Brand name effects
  • Horizontal differentiation
  • Information acquisition
  • Product customization

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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