On the Definition of Differentiated Products in the Real World.

This paper proposes an abstract model of commodity differentiation that incorporates manufacturing imprecision and dimensioning and tolerancing standards. The potential consistency of such model based on engineering consideration is analyzed. For a large pure exchange economy, competitive equilibria exist and are Pareto optimal. Production issues such as the derived demand for intermediate products, continuity of cost functions, and product selection and technology issues such as mass customization, agile manufacturing, and manufacturability are discussed.