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Market-Based Solutions to Vital Economic Issues


Market-Based Solutions to Vital Economic Issues
May 8, 2018

Personal Fabrication as an Operational Strategy: Value of Delegating Production to Customer


Problem definition: There is a growing interest in the industry around 3D printing. A related phenomenon is personal fabrication (PF) in which a firm sells products’ design and lets the customers manufacture the product at their personalized quality level using 3D printing services. In this paper, we characterize the market and operational conditions that make PF an attractive operational strategy.

Academic/Practical Relevance: We develop a stylized model that captures two critical benefits of PF strategy: product personalization and postponement of product positioning. Our paper is the first to study these benefits and associated trade-offs and it sheds light on how a firm can benefit from adopting PF strategy.

Methodology: We employ game theory to model the product and pricing decisions of firms competing in a vertically differentiated product market and facing stochastic demand.

Results: While personalization enabled by PF strategy can provide a competitive advantage, it does not help a monopolist. In contrast, postponement enabled by PF strategy is always helpful. PF strategy can be attractive even when it has a cost disadvantage. Furthermore, it can tolerate a higher cost disadvantage in bottom-heavy (price conscious) markets. However, when PF becomes cost competitive, it will be more valuable in top-heavy (quality conscious) markets. Finally, we show that the feasibility of partial PF strategy critically depends on the cost evolution of 3D printing.

Managerial Implications: Our results characterize the attractiveness of PF strategy based on the market structure, price vs quality consciousness of the customer base, demand uncertainty and IP/liability restrictions of the product.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.

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