Economics of Product Development by Users : The Impact of 'Sticky' Local Information

Those who solve more of a given type of problem tend to get better at it — which suggests that problems of any given type should be brought to specialists for a solution. However, in this paper we argue that agency-related costs and information transfer costs (‘‘sticky'' local information) will tend drive the locus of problem-solving in the opposite direction — away from problem-solving by specialist suppliers, and towards those who directly benefit from a solution and who have difficult-to-transfer local information about a particular application being solved, such as the direct users of a product or service. We examine the actual location of design activities in two fields in which custom products are produced by ‘‘mass-customization'' methods: application-specific integrated circuits (ASICs) and computer telephony integration (CTI) systems. In both, we find that users rather than suppliers are the actual designers of the application-specific portion of the product types examined. We offer anecdotal evidence that the pattern of user-based customization we have documented in these two fields is in fact quite general, and we discuss implications for research and practice