TY - GEN
T1 - Adoption of internet-based product customization and pricing strategies
AU - Dewan, Rajiv
AU - Jing, Bing
AU - Seidmann, Abraham
PY - 2000
Y1 - 2000
N2 - The Internet commerce technologies have significantly reduced sellers' costs of collecting buyer preference information and managing multiple prices, enabling cost efficient custom product design and differentiated pricing. Advanced manufacturing technologies have also improved sellers' manufacturing flexibility. We show that an early adopter of customization has a first-mover advantage, supporting the popular hypothesis that mass customization allows the seller to sell more and even charge more. The seller adopting customization will also provide standard products and will raise the price for his standard goods to protect the premium prices for the custom goods. When two competing sellers adopt the same customization strategies, however, they both will be compelled to over-invest in customization and will be worse off. Adopting customization by both sellers will lead to reduced product differentiation but not intensified price competition between their standard products because the premium prices for custom goods help relax the conventional market price competition. Surprisingly, when choosing product strategies simultaneously, both sellers will pick customization, resulting in the well-known Prisoner's Dilemma. Total buyer surplus does improve after sellers adopt customization. In addition, our results also confirm some key findings in IT productivity and strategic IT investments literature.
AB - The Internet commerce technologies have significantly reduced sellers' costs of collecting buyer preference information and managing multiple prices, enabling cost efficient custom product design and differentiated pricing. Advanced manufacturing technologies have also improved sellers' manufacturing flexibility. We show that an early adopter of customization has a first-mover advantage, supporting the popular hypothesis that mass customization allows the seller to sell more and even charge more. The seller adopting customization will also provide standard products and will raise the price for his standard goods to protect the premium prices for the custom goods. When two competing sellers adopt the same customization strategies, however, they both will be compelled to over-invest in customization and will be worse off. Adopting customization by both sellers will lead to reduced product differentiation but not intensified price competition between their standard products because the premium prices for custom goods help relax the conventional market price competition. Surprisingly, when choosing product strategies simultaneously, both sellers will pick customization, resulting in the well-known Prisoner's Dilemma. Total buyer surplus does improve after sellers adopt customization. In addition, our results also confirm some key findings in IT productivity and strategic IT investments literature.
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M3 - Conference contribution
AN - SCOPUS:0033905417
SN - 0769504930
T3 - Proceedings of the Hawaii International Conference on System Sciences
SP - 135
BT - Proceedings of the Hawaii International Conference on System Sciences
PB - IEEE Computer Society
T2 - The 33rd Annual Hawaii International Conference on System Siences (HICSS-33)
Y2 - 4 January 2000 through 7 January 2000
ER -