Exogenous and Endogenous Set-up Costs in Markets with Customized Products

Name: Exogenous and Endogenous Set-up Costs in Markets with Customized Products
Brand: Vita e Pensiero
Price: 6.00 EUR
Availability: OnlineOnly

digital

Article

Magazine

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI

Issue

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI - 2006 - 4

Title

Exogenous and Endogenous Set-up Costs in Markets with Customized Products

Author

Marcella Scrimitore

Publisher

Vita e Pensiero

Format

Article |

Pdf

Pages

Online from

10-2006

Issn

0035-676X (print) | 1827-7918 (digital)

€ 6.00

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Description

In this paper we present a model of spatial competition that highlights firms’ customization strategies in an imperfect competitive environment. The nature of competition in markets with products designed according to consumer preferences is discussed both in a framework of exogenous and endogenous set-up costs. Set-up costs are considered endogenous when technology is such that reductions in variable customization costs are feasible at additional set-up costs. It is shown that when set-up costs are exogenous, strategic interaction induces firms to choose the most efficient customization technology, though the latter entails a reduction in prices and profits and a more concentrated market structure. When set-up costs are endogenous, the incentive to choose strategically a more efficient customization technology depends on the possibility to cheaply transfer the customization costs into the set-up costs. This explains why customization is more frequently observed for information goods and in digital markets.