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Concurrent Renting and Selling in a Durable-Goods Monopoly under Threat of Entry

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Listed:
  • Sam Bucovetsky
  • John Chilton

Abstract

This article analyzes the choice of contract (sales or rental) of a durable-goods monopolist facing a threat of future entry. Although in the absence of such a threat a monopolist would prefer to rent his entire output, we show that the threat of entry alters that preference. There is an optimal preentry contract mix, involving both rental and sales. If both firms behave as Cournot duopolists after entry, the optimal choice of preentry contracts enables the erstwhile monopolist to gain the same profits as he would if he behaved as a von Stackelberg leader.

Suggested Citation

  • Sam Bucovetsky & John Chilton, 1986. "Concurrent Renting and Selling in a Durable-Goods Monopoly under Threat of Entry," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 261-275, Summer.
  • Handle: RePEc:rje:randje:v:17:y:1986:i:summer:p:261-275
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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. Preyas Desai & Devavrat Purohit, 1998. "Leasing and Selling: Optimal Marketing Strategies for a Durable Goods Firm," Management Science, INFORMS, vol. 44(11-Part-2), pages 19-34, November.
    3. Amagoia Sagasta & José M. Usategui, 2015. "Purchase and rental subsidies in durable-oligopolies," Hacienda Pública Española, IEF, vol. 213(2), pages 11-40, June.
    4. Jennifer Zhang & Abraham Seidmann, 2006. "Selling and Leasing Software with Network Externality," Working Papers 06-13, NET Institute, revised Aug 2006.
    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. Sagasta Elorza, Amagoia & Usategui Díaz de Otalora, José María, 2012. "Optimal overall emissions taxation in durable goods oligopoly," DFAEII Working Papers DFAEII;2012-18, University of the Basque Country - Department of Foundations of Economic Analysis II.
    7. S. Huang & Y. Yang & K. Anderson, 2001. "A Theory of Finitely Durable Goods Monopoly with Used-Goods Market and Transaction Costs," Management Science, INFORMS, vol. 47(11), pages 1515-1532, November.
    8. Hung-Ken Chien & C. Y. Cyrus Chu, 2008. "Sale or Lease? Durable-Goods Monopoly with Network Effects," Marketing Science, INFORMS, vol. 27(6), pages 1012-1019, 11-12.
    9. Saggi, Kamal & Vettas, Nikolaos, 2000. "Leasing versus selling and firm efficiency in oligopoly," Economics Letters, Elsevier, vol. 66(3), pages 361-368, March.
    10. Heidrun C. Hoppe & In Ho Lee, 2000. "Entry Deterrence in Durable-Goods Monopoly," Econometric Society World Congress 2000 Contributed Papers 0610, Econometric Society.
    11. Sreekumar R. Bhaskaran & Stephen M. Gilbert, 2005. "Selling and Leasing Strategies for Durable Goods with Complementary Products," Management Science, INFORMS, vol. 51(8), pages 1278-1290, August.
    12. repec:eee:ejores:v:266:y:2018:i:3:p:1044-1061 is not listed on IDEAS
    13. Preyas S. Desai & Devavrat Purohit, 1999. "Competition in Durable Goods Markets: The Strategic Consequences of Leasing and Selling," Marketing Science, INFORMS, vol. 18(1), pages 42-58.
    14. Usategui Díaz de Otalora, José María, 2001. "Commitment Power in a Non-Stationary Durable-Good Market," BILTOKI 2001-08, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística).
    15. Yan, Wei & Li, Youwei & Wu, Ying & Palmer, Mark, 2016. "A rising e-channel tide lifts all boats? The impact of manufacturer multi-channel encroachment on traditional selling and leasing," MPRA Paper 70747, University Library of Munich, Germany.
    16. Andrikopoulos, Athanasios & Markellos, Raphael N., 2015. "Dynamic interaction between markets for leasing and selling automobiles," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 260-270.
    17. Poddar, Sougata, 2004. "Strategic choice in durable goods market when firms move simultaneously," Research in Economics, Elsevier, vol. 58(2), pages 175-186, June.
    18. Kim, Jae-Cheol & Kim, Min-Young & Chun, Se-Hak, 2014. "Property tax and its effects on strategic behavior of leasing and selling for a durable-goods monopolist," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 132-144.
    19. Stephen M. Gilbert & Sreelata Jonnalagedda, 2011. "Durable Products, Time Inconsistency, and Lock-in," Management Science, INFORMS, vol. 57(9), pages 1655-1670, September.
    20. Hoppe, Heidrun C. & Lee, In Ho, 2003. "Entry deterrence and innovation in durable-goods monopoly," European Economic Review, Elsevier, vol. 47(6), pages 1011-1036, December.
    21. 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.
    22. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
    23. Li, Changying & Geng, Xiaoyan, 2008. "Licensing to a durable-good monopoly," Economic Modelling, Elsevier, vol. 25(5), pages 876-884, September.
    24. Cerquera Dussán, Daniel, 2007. "Durable Goods, Innovation and Network Externalities," ZEW Discussion Papers 07-086, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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