Strategic Implications of Intermediaries Upon Leasing and Selling of Durable Goods

36 Pages Posted: 20 Jan 2006 Last revised: 22 Apr 2008

See all articles by Sreekumar R. Bhaskaran

Sreekumar R. Bhaskaran

Southern Methodist University (SMU) - Information Technology and Operations Management Department (ITOM)

Stephen Gilbert

University of Texas at Austin - McCombs School of Business

Date Written: January 9, 2006

Abstract

In spite of the fact that many durable products are sold through dealers, the literature has largely ignored the issue of how product durability affects the interactions between a manufacturer and her dealer(s). We seek to fill this gap by considering a durable goods manufacturer that uses an independent dealer(s) to get her product to consumers. If the manufacturer sells her product to the dealer, then the dealer can either sell or lease it to the final consumer. On the other hand, if the manufacturer leases her product to the dealer, then the dealer is forced to lease it to the consumer. We first characterize the equilibrium for a manufacturer who distributes through a single dealer as a function of the costs of production and distribution. Among other things, we show that the selling and leasing decisions of the two channel partners should balance operational efficiency against the mitigation of time inconsistency. Subsequently, we characterize the equilibrium for a manufacturer who distributes through multiple dealers as a function of the intensity of inter-dealer competition. One of our more interesting findings is that, when the level of competition among dealers is high, the manufacturer prefers to lease the product to her dealers, which forces them to lease to consumers. This complements existing results that show that when suppliers of durable goods interact directly with consumers, then selling becomes the dominant strategy when competitive intensity is high.

Keywords: durable goods, decentralized channel, time -inconsistency, double-marginalization, competition

JEL Classification: M5, D3

Suggested Citation

Bhaskaran, Sreekumar R. and Gilbert, Stephen, Strategic Implications of Intermediaries Upon Leasing and Selling of Durable Goods (January 9, 2006). McCombs Research Paper Series No. IROM-03-06. Available at SSRN: https://ssrn.com/abstract=876980 or http://dx.doi.org/10.2139/ssrn.876980

Sreekumar R. Bhaskaran (Contact Author)

Southern Methodist University (SMU) - Information Technology and Operations Management Department (ITOM) ( email )

Dallas, TX 75275
United States

Stephen Gilbert

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

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