Duopoly and Product Design
10 Pages Posted: 27 Jun 2014
Date Written: June 25, 2014
Competition in product design is considered in the context of a circular duopoly model where each duopolist can choose either a standardized design or a customized version of its product. We examine the circumstances that lead to multiple equilibria, and characterize the type of equilibrium as a function of both the customization costs and the lower bound on the degree of customization. In the welfare analysis, it is shown that the degree of customization offered in equilibrium can be substantially different from the socially optimal level of this variable.
Keywords: competition, product design, standardization
JEL Classification: D43, L11, L13, M31
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