 Pricing Joint Sales and Rentals: When are Purchase Conversion Discounts Optimal?Monire Jalili and Michael S. Pangburn Production and Operations Management, 2020, vol. 29, issue 12, 2679-2695 Abstract: Product sales and rentals often occur in parallel, allowing customers to choose their preferred option. In settings where consumers face significant value uncertainty, rentals also provide a mechanism for consumers to discover whether they like a product. For some products, such as movies and books, the rental option may yield a significant proportion of the utility associated with ownership. The convenience of renting products in digital forms (e.g., e‐books) makes the managerial challenge of jointly pricing rentals and sales increasingly relevant. Rental and sales prices are interdependent not only because consumers can choose between the two options, but also because a customer may rent before purchasing. Given these considerations, and allowing for consumer uncertainty, we analyze the optimal joint pricing of product rentals and sales. We show that when consumers have a relatively high probability of liking a product, and will experience a significant drop in their post‐rental residual utility, then the practice of allowing a portion of the rental price to apply to a future purchase is optimal. Date: 2020 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:29:y:2020:i:12:p:2679-2695 Ordering information: This journal article can be ordered from Access Statistics for this article Production and Operations Management is currently edited by Kalyan Singhal More articles in Production and Operations Management from Production and Operations Management Society |
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