Optimal Per‐Use Rentals and Sales of Durable Products and Their Distinct Roles in Price Discrimination

Abstract

We consider a setting in which consumers experience distinct instances of need for a durable product at random intervals. Each instance of need is associated with a random utility and the consumers are dierentiated according to the frequency with which they experience such instances of need. We use our model of consumer utility to characterize the rm's optimal strategy of whether to sell, rent, or do a combination of both in terms of the transaction costs and consumers' usage characteristics. We nd that the two modes of operation serve dierent roles in allowing the rm to price discriminate. While sales allow the rm to discriminate among consumers of dierent usage frequencies, rentals allow it to discriminate according to consumers' realized valuations. Consequently, even when transaction costs are negligible, it is often optimal for the rm to simultaneously rent and sell its product. In addition, we nd that although sales and rentals are substitutes and that the oering of sales weakly increases rental prices, it is possible that the introduction of rentals to a pure selling operation can either increase or decrease the optimal sales prices.

Leasing or selling? The channel choice of durable goods manufacturer considering consumers’ capital constraint

“…It is possible for the leasing channel to be greener if we remove the off-lease products in the mid-life. Gilbert et al (2014) use a per-use rental model of consumers to figure out the firm's optimal strategy. They conclude that the two operation modes played differently in the way to price discrimination.…”

Peer-to-Peer Rental Markets in the Sharing Economy

“…We also add to a small literature that deals explicitly with economic issues relating to peer-to-peer 'sharing economy' marketplaces. For example, (Fradkin 5 Other analysis of secondary markets for durable goods in the literature include aircrafts ( (Gilligan 2004) (Gavazza 2011a) (Gavazza 2011b)), textbooks ((Chevalier and Goolsbee 2009)), digital goods ((Varian 2000), (Rao 2011), (Schiller 2012) (Gilbert, Randhawa and Sun 2013)) among others. There is also a literature in macroeconomics that uses transaction costs to explain the slow adjustment in the stock of durables ( (Eberly 1994), (Attanasio 2000)).…”

How Does the Electronic Products Retailer Transform Operational Modes Considering Consumer Preferences for Leasing?

“…e model established by Li et al discussed this issue and found that manufacturers offer products to consumers at low prices through leasing, which expands the market coverage and creates price discrimination [4]. Gilbert et al [5] analyzed how per-use rentals and sales differentiate consumers within the framework of a hybrid selling-leasing model. ey found that sales allow a firm to discriminate according to consumers' usage frequencies, and rentals allow it to discriminate according to their realized valuation.…”

“…ey also mentioned two interactions between consumers and leases: the decrease in the lease product value and the restrictions on the choice of leasing and selling under capital constraint. Gilbert et al [5] used a similar model to describe the relationship between consumer utility and usage rate. For electronic products, there are differences in consumer acceptance of product leases.…”