Co-production or DIY: an analytical model of consumer choice and social preferences

Abstract

Purpose

The purpose of this paper is to demonstrate how consumers choose among three different options offered by a firm in a monopolistic setting, namely, to buy a standard product with a non-customizable design, to ask the firm to customize a product using the consumer’s ideal design or to do the entire design task by themselves. The authors also investigate how social preference intensity and the possibility of reselling a product influence a consumer’s decision.

Design/methodology/approach

The authors develop an analytical (game theoretical) consumer choice framework and incorporate a psychological factor into the model. The authors also empirically validate the analytical findings using simulations.

Findings

The authors find that as social preference intensity increases, the number of co-producers can either decrease or increase. The authors offer a closed-form solution and interval graphs showing that when the setup price is large (small), the proportion of the market that chooses to do-it-yourself (DIY) is large (small) and an increase in social preference intensity leads to a decrease (increase) in co-production.

Originality/value

This is the first paper to incorporate a social factor into an economic model in a consumer behavior setting. It is also the first paper to explain how customers’ preferences among possible options, such as DIY (without the firm’s help), co-production (with the firm’s help) and a standard product might change while considering other people’s preferences, as well as given associated costs.

Citation

Dargahi, R., Namin, A. and Ketron, S. (2021), "Co-production or DIY: an analytical model of consumer choice and social preferences", Journal of Product & Brand Management, Vol. 30 No. 2, pp. 306-319. https://doi.org/10.1108/JPBM-09-2019-2565