Competitive Adoption of Mass Customization and Environmental Sustainability in Fashion

We explore adoption of mass customization (MC) -- in place of mass production (MP) -- in a profit-driven competitive environment as a solution to the serious problem of overproduction (and all the environmental waste that it generates) endemic in the fashion industry. Building on a demand model sensitive to product variety, price and a lead time for mass-customized products, we analyze a duopoly competition game that includes production technology selection between MP and MC. We then take the equilibrium of this game as a characterization of the profit-driven market outcome, and analyze its environmental impact. This analysis teaches us when adoption of MC leads to lower environmental impact and why. We uncover, for example, when MC adoption by one firm (with the other sticking with MP) leads to higher profits for both firms and lower total environmental impact -- a so called win-win-win. Also, generally speaking, low-to-medium marginal cost of production is more conducive for MC adoption to lead to greener outcomes. This is good news in that lower marginal costs typically imply lower prices and higher sales volumes in practice, pointing to the part of the fashion industry that has larger absolute environmental impact. Finally, we ask two policy questions: (1) How does promoting MC in the sense of making the wait for mass-customized products more tolerable for consumers change the relationship between MC adoption and environmental impact? (2) What does charging a disposal fee for overproduction do for the same relationship? We find that the first policy idea makes sustainable adoption of MC more viable, but the second has the opposite effect (disposal fee and MC are substitutes in curbing overproduction)