Suchergebnisse

AbstractThis paper explores the impact of intensity of rivalry in downstream market on the equilibrium locations of the downstream firms under a vertical market structure á la Hotelling. We find that: (i) the presence of upstream firms softens the spatial competition in downstream market; (ii) minimum differentiation cannot be achieved as the equilibrium outcome and the equilibrium product differentiation is insufficient relative to socially optimum; (iii) social welfare is higher with a higher weight attached to intensity of rivalry, which is different from the non-monotonic relationship under the horizontal market case; (iv) the equilibrium product differentiation is independent of bargaining power under the two-part tariff contracts, which is different from Brekke and Straume (2004) under linear pricing.

ABSTRACTMass customization provides a mechanism by which firms can better target a broad scope of consumer preferences and thus, in so doing, potentially increase their profits. We study product‐design and price competition between two mass‐customizing firms that serve consumers with varying tastes and finite reservation prices. Mass customization has recently received notable attention in both industry and academia, but yet there have been few studies concerning its impact in competitive settings. We contribute to this sparse literature by analyzing a two‐stage non‐cooperative game between two firms serving a Hotelling linear city. By comparing symmetric equilibrium results in settings with and without mass customization, we find that customization changes the nature of competition. More specifically, we show that with customization, a symmetric equilibrium emerges only if the firms' customization cost lies below a threshold, however, the magnitude of that cost does not influence product design decisions in equilibrium. We find that the equilibrium with customizing firms will not sustain cost levels above that threshold. Furthermore, we show that mass customizers earn higher equilibrium profits when consumers' fit sensitivity either significantly or only slightly exceeds the product valuation. On the contrary, traditional firms are better off when facing moderate fit sensitivity. We also establish that competition with mass customization may lead to lower profits and consumer surplus.