Adoption of internet-based product customization and pricing strategies

Rajiv Dewan, Bing Jing, Abraham Seidmann

Research output: Chapter in Book/Report/Conference proceedingConference contribution

1 Scopus citations

Abstract

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.

Original languageEnglish (US)
Title of host publicationProceedings of the 33rd Annual Hawaii International Conference on System Sciences, HICSS 2000
PublisherIEEE Computer Society
ISBN (Electronic)0769504930
StatePublished - 2000
Externally publishedYes
Event33rd Annual Hawaii International Conference on System Sciences, HICSS 2000 - Maui, United States
Duration: Jan 4 2000Jan 7 2000

Publication series

NameProceedings of the Annual Hawaii International Conference on System Sciences
Volume2000-January
ISSN (Print)1530-1605

Conference

Conference33rd Annual Hawaii International Conference on System Sciences, HICSS 2000
Country/TerritoryUnited States
CityMaui
Period1/4/001/7/00

ASJC Scopus subject areas

  • Engineering(all)

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