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Marketing Channels and the Durable Goods Monopolist: Renting versus Selling Reconsidered

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  • Purohit, Devavrat

Abstract

Research on durable goods has shown that because of a time inconsistency problem, a monopolist manufacturer prefers to rent rather than sell its product. We reexamine the relative profitability of renting versus selling from a marketing perspective. In particular, using a simple linear demand formulation, we assume a durable goods monopolist has to use downstream intermediaries to market its product. In contrast to the case of an integrated monopolist, we find that when the monopolist has to rely on intermediaries, then it prefers to go through an intermediary that sells rather than one that rents its product. Similarly, the intermediary that sells the product is more profitable than the intermediary that rents the product. However, if the monopolist can commit to a set of prices, then the intermediary that rents is more profitable than the intermediary that sells. Copyright 1995 by MIT Press.

Suggested Citation

  • Purohit, Devavrat, 1995. "Marketing Channels and the Durable Goods Monopolist: Renting versus Selling Reconsidered," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 69-84, Spring.
  • Handle: RePEc:bla:jemstr:v:4:y:1995:i:1:p:69-84
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    Cited by:

    1. Sreekumar R. Bhaskaran & Stephen M. Gilbert, 2009. "Implications of Channel Structure for Leasing or Selling Durable Goods," Marketing Science, INFORMS, vol. 28(5), pages 918-934, 09-10.
    2. Goering, Gregory E., 2005. "Durable goods monopoly and quality choice," Research in Economics, Elsevier, vol. 59(1), pages 59-66, March.
    3. repec:eee:jouret:v:87:y:2011:i:4:p:489-501 is not listed on IDEAS
    4. Gregory Goering & Michael Pippenger, 2002. "Durable Goods Monopoly and Forward Markets," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(2), pages 271-282.
    5. Gregory E. Goering, 2012. "Taxation and Durable-Goods Monopoly: Does a Current Tax Influence Firm Behavior?," Review of Economics & Finance, Better Advances Press, Canada, vol. 2, pages 20-28, August.
    6. Xiong, Yu & Yan, Wei & Fernandes, Kiran & Xiong, Zhong-Kai & Guo, Nian, 2012. "“Bricks vs. Clicks”: The impact of manufacturer encroachment with a dealer leasing and selling of durable goods," European Journal of Operational Research, Elsevier, vol. 217(1), pages 75-83.
    7. Gregory Goering & Michael Pippenger, 2003. "Dynamic consistency and monopoly," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 31(2), pages 188-194, June.
    8. Preyas Desai & Oded Koenigsberg & Devavrat Purohit, 2001. "Coordinating Channels for Durable Goods: The Impact of Competing Secondary Markets," Review of Marketing Science Working Papers 1-1-1017, Berkeley Electronic Press.

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