The Strategic Choice of the Firm with Customization Capability

Abstract

The needs of customization are increasing gradually. It leads to various and customized products and service. The issue “Mass Customization” also comes out for discussion. We use a game-theoretical model to discuss the competition between the firms with and without customization capability. We assume that the firm without customization capability can adjust the product characteristics by inputting advertising or selecting market location. We find that when the firm with customization capability chooses to customize products, the other firm that selects the market location as competition strategy would make itself more professional. Moreover, the firm with customization capability has the potential effect on decreasing other firms’ profit. We also discuss how the relative size between the cost coefficient of market location and the cost coefficient of advertising input would affect the strategic choice of the two firms.