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Effects of Commonality Strategy in Product Line Design on Social Welfare  

Kim, Kil-Sun (서강대학교 경영대학)
Publication Information
Journal of the Korean Operations Research and Management Science Society / v.33, no.3, 2008 , pp. 77-92 More about this Journal
Abstract
Commonality strategy is a popular design practice in designing a product line as it enables the firm cost saving and simplification in design, manufacturing, and distribution processes. However the issue of commonality has been mostly analyzed from a profit maximizing firm's perspective and, to our knowledge, there is no literature that deals with the issue from a different perspective. in this paper, we consider the issue of commonality strategy from a social welfare maximization perspective, and argue that commonality strategy used in designing of public goods can bring certain benefits not just for a firm but also for consumers, i.e., for society as a whole. While we assume certain cost saving in production process due to economies of scale under commonality strategy, we conceptualize two different effects of commonality strategy, utility effect due to cost saving and weighted-averaging effect, and show how these two effects interplay to determine the design of common attribute and desirability of commonality strategy. We also discuss how the implementation of commonality strategy differs under different objectives of a product line designer : social welfare and firm's profit maximization.
Keywords
Commonality Strategy; Social Welfare; Modeling; Product Line Design;
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