Rent‐to‐Own Pricing: Theory and Empirical Evidence

Sanjiv Jaggia, Hervé Roche and Michael H. Anderson

Journal of Consumer Affairs, 2019, vol. 53, issue 3, 1025-1055

Abstract: The rent‐to‐own (RTO) industry given its emphasis on subprime or, at least, financially constrained consumers is often seen as exploitative with excessive financing costs. This paper develops a rational‐expectations competitive equilibrium model to explore the pricing mechanism of an RTO agreement. The model accounts for the contract's embedded options and several bundled services. Using detailed transactional data, we infer how customers exercise these options to calibrate our model for several product categories, contractual lengths and payment periodicity. The resulting predictions provide a justification for the high financing costs observed in the marketplace.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1111/joca.12216

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jconsa:v:53:y:2019:i:3:p:1025-1055

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0022-0078

Access Statistics for this article

Journal of Consumer Affairs is currently edited by Sharon Tennyson

More articles in Journal of Consumer Affairs from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().