The Internet provides an unprecedented capability for sellers to learn about their customers and offer custom products at special prices. In addition, customization is more feasible today because of advances in manufacturing technologies that have improved sellers' manufacturing flexibility. We first develop a model of product customization and flexible pricing to incorporate the salient roles of the Internet and flexible manufacturing technologies in reducing the costs of designing and producing tailored consumer goods. We show how a monopoly seller may earn the highest profits by producing both standard and custom products and can raise prices for both types of products as customization and information collection technologies improve. Simultaneous adoption of customization in a duopoly reduces the differentiation between their standard products but does not intensify price competition. Compared with a two-facility monopolist, the duopoly may underinvest in customization. Consumer surplus improves after sellers adopt customization but does not monotonically increase as customization technologies advance. When firms face a fixed entry cost and adopt customization sequentially, the first entrant always achieves an advantage and may be able to deter subsequent entry by choosing its customization scope strategically.Mass Customization, Price Discrimination, Product Differentiation, Internet Economics
Rapid technological developments and deregulation of the telecommunications industry have changed the way in which content providers distribute and price their goods and services. Instead of selling a bundle of content and access through proprietary networks, these firms are shifting their distribution channels to the Internet. In this new setting, the content and Internet service providers find themselves in a relationship that is simultaneously cooperative and competitive. We find that proprietary content providers prefer the Internet channels to direct channels only if the access market is sufficiently competitive. Furthermore, maintaining a direct channel in addition to the Internet channels changes the equilibrium enough that the proprietary content providers prefer having the Internet channels, regardless of the level of competition in the access market. Telecommunications technology developments uniformly increase content providers' profit. On the other hand, the technology impact on Internet service provider profits is nonmonotonic: Their profits may increase or decrease as a result of lower telecommunication costs. While initially the ISP profit increases as more customers are drawn to the Internet, it eventually decreases as the spatial competition becomes more intense. We also show that proprietary content providers should benefit from having some free content available at the Internet service providers' sites to induce more customers to join the Internet.electronic commerce, electronic publishing, digital content, information goods, internet service providers (ISP), pricing content, industrial organization, spatial competition, industry structure
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