Does Market Competition Lead to Customization?

• Main Authors: HSU, Wen-Tai, LU, Yi, NG, Travis
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2014
• Subjects: Customization; Competition; Manufacturing; Spatial competition; Behavioral Economics; Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/1639; https://ink.library.smu.edu.sg/context/soe_research/article/2638/viewcontent/MarketCompetitionLeadtoCustomization_11mar2014.pdf
• Institution: Singapore Management University

This paper proposes a theory of competition and customization. When firms allocate their production to both custom-made and standardized products, the fraction of sales from the former will increase in the face of increased competition. Recent surveys conducted by the World Bank on Chinese firms provide a rare direct measure of customization that allows us to test the above-mentioned prediction. We find empirical results consistent with the prediction.