Marketing Department's Lecture

Theme：Competitive Product Customization in a Multimarket Environment

Speaker：Xueying Liu （Rice University）

Time：2019-11-20 14:00

Address：Room 706, Mingde Business Building

Language：English/Chinese

Abstract：

The continued development of product customization technologies has made it possible for firms to address the individual tastes of their customers. For example, in 2018, Japanese fast fashion firm Uniqlo introduced customized clothing to fit their consumers’ personalized tastes, allowing it to gain a competitive advantage. While the existing literature has mainly focused on price competition between customized products, we take a broader perspective. We investigate the interplay between firms’ pricing strategies and their choice of the customized product range. Furthermore, our model incorporates a more realistic cost structure for the customization process. In a three firms model, we find that a-priori symmetric firms may employ asymmetric customization and pricing strategies in equilibrium. It is the inclusion of per-product customization cost (in addition to the overall cost of customization technology) that allows us to observe this result. As the per-product customization cost (PPC) increases, fewer firms customize in equilibrium. Interestingly enough, when the PPC is reasonably low, all the firms offer customized products, no matter how expensive the customization technology is. The findings are generalizable and carry through with more than three firms. In a two-firm model, the equilibrium where both firms offer customized products is a prisoner’s dilemma. And in an oligopoly setting all firms obtain the highest profit if none of them customize. Thus the technological ability to offer customized products may generally be detrimental to firms’ profits. A closer look at the uniform vs differentiated pricing identifies the conditions when one strategy outperforms the other, explaining the prevalence of uniform pricing for customized products in practice.

Short biography：

Xueying is currently a doctoral student in marketing at the Jones Graduate School of Business, Rice University. She is a quantitative researcher employing game theory and econometric techniques to gain insights into marketing problems. Her research focuses on pricing, competitive marketing strategies, product customization, and co-creation. Specifically, her primary research examines the impact of firms’ choice of the range of customized products offered and its impact on optimal pricing and profits in a competitive environment. She also studies the impact of the presence of gray markets on firms’ choice of product quality and pricing in different channel structures and shows that all participants may benefit from the gray markets. Her recent project explores the rich interaction between consumers, developers, and technology platforms for the co-creation of digital goods under various possible revenue extraction mechanisms.