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Seller Financing of Consumer Durables

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  • Arijit Sen

Abstract

Sellers of consumer durables often provide financing to customers. This paper shows that when customers desire consumption smoothing and when financial markets are imperfect, a seller can find it optimal to offer a menu of deferred‐payment plans. A monopolist seller price discriminates among customers with different intertemporal income profiles by making such menu offers, and the interest rate on the seller credit can be significantly lower than the market borrowing rate. Seller financing can be an equilibrium outcome in a game where sellers and banks with market power choose payment plans and interest rates strategically.

Suggested Citation

  • Arijit Sen, 1998. "Seller Financing of Consumer Durables," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(3), pages 435-460, September.
    • Handle: RePEc:bla:jemstr:v:7:y:1998:i:3:p:435-460
    DOI: 10.1111/j.1430-9134.1998.00435.x
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    References listed on IDEAS

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    1. Schmalensee, Richard, 1982. "Commodity Bundling by Single-Product Monopolies," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 67-71, April.
    2. Che, Y.K. & Gale, I.,, 1994. "The Optimal Mechanism for Selling to Budget-Constrained Consumers," Working papers 9415, Wisconsin Madison - Social Systems.
    3. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
    4. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages 211-230, January.
    5. Lewbel, Arthur, 1985. "Bundling of substitutes or complements," International Journal of Industrial Organization, Elsevier, vol. 3(1), pages 101-107, March.
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    Cited by:

    1. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
    2. Dan Zhou & Zhong Yao, 2015. "Optimal Referral Reward Considering Customer’s Budget Constraint," Future Internet, MDPI, vol. 7(4), pages 1-14, December.
    3. Zheng, Charles Z., 2001. "High Bids and Broke Winners," Journal of Economic Theory, Elsevier, vol. 100(1), pages 129-171, September.
    4. Wahyu Jatmiko & M. Shahid Ebrahim & Abdullah Iqbal & Rafal M. Wojakowski, 2023. "Can trade credit rejuvenate Islamic banking?," Review of Quantitative Finance and Accounting, Springer, vol. 60(1), pages 111-146, January.
    5. Pejman Abedifar & Shahid M. Ebrahim & Philip Molyneux & Amine Tarazi, 2015. "Islamic Banking And Finance: Recent Empirical Literature And Directions For Future Research," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 637-670, September.
    6. M. Shahid Ebrahim & Seema Makhdoomi & Mustapha Sheikh, 2012. "The Political Economy and the Perennial Underdevelopment of the Muslim World," Working Papers 12011, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    7. Charupat, Narat & Prisman, Eliezer Z., 2004. "An essay on financial innovation: The case of instalment receipts," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 129-156, January.

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