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On Customized Goods, Standard Goods, and Competition

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  • Niladri B. Syam

    (C. T. Bauer College of Business, University of Houston, 385 Melcher Hall, Houston, Texas 77204)

  • Nanda Kumar

    (School of Management, The University of Texas at Dallas, Dallas, Texas)

Abstract

In this study, we examine firms' incentive to offer customized products in addition to their standard products in a competitive environment. We offer several key insights. First, we delineate market conditions in which firms will (will not) offer customized products in addition to their standard products. Surprisingly, we find that when firms offer customized products they are able to not only expand demand, but can also the prices of their standard products relative to when they do not. Second, we find that when a firm offers customized products it is a dominant strategy for it to also offer its standard product. This result highlights the role of standard products and the importance of retaining them when firms offer customized products. Third, we identify market conditions under which ex ante symmetric firms will adopt symmetric or asymmetric customization strategies. Fourth, we highlight how the degree of customization offered in equilibrium is affected by market parameters. We find that the degree of customization is lower when both firms offer customized products relative to the case when only one firm offers customized products. Finally, we show that customizing products under competition does not lead to a prisoner's dilemma.

Suggested Citation

  • Niladri B. Syam & Nanda Kumar, 2006. "On Customized Goods, Standard Goods, and Competition," Marketing Science, INFORMS, vol. 25(5), pages 525-537, September.
    • Handle: RePEc:inm:ormksc:v:25:y:2006:i:5:p:525-537
    DOI: 10.1287/mksc.1060.0199
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    References listed on IDEAS

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