Modeling the economics of differentiated durable-goods markets

Abstract

Leasing has traditionally been one of the tools that firm employs to increase market share. It is not intuitive that this strategy would actually be beneficial. It is certainly not true if we consider only perishable goods. However, there are goods in the market that does not perish the instant we comsume it or durable goods. Having leasing option in durable goods created another market for used goods as a residue when the lease term ends. In the past, we have seen companies implementing this policy exclusively even abandoning their selling option. Here we are only considering the case where firms never sells their new goods due to the high transaction cost incurred. Durable goods is interesting on its own accord since we are faced with a dynamic problem in which each period depends on the previous periods action since we might still have an option to reuse the product we purchased from the previous periods. Thus the decision process for the market participants are intrinsically dynamic...