On the Economics of Mass Customization

As many “management philosophies” and business strategies, mass customization is often presented as a panacea for solving business problems. However, from the viewpoint of economic theory, there are almost no concepts that strictly dominate the previous situation. This holds also for the concept of mass customization. The paper discusses the pros and cons of mass customization and develops a model to explain the factors that influence the economics of this concept. The classical Cournot model of determining the maximum profit in a monopolistic situation is enlarged to deal with situations in which mass customization is a possible action, providing additional revenues, but also resulting in additional costs. Formulas for determining the effects of mass customization are developed and the optimal solution is computed.