Selling or Leasing? Pricing Information Goods with Depreciation of Consumer Valuation

Yifan Dou (), Yu Jeffrey Hu () and D. J. Wu ()
Additional contact information
Yifan Dou: School of Management, Fudan University, 200433 Shanghai, China
Yu Jeffrey Hu: Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30308
D. J. Wu: Scheller College of Business, Georgia Institute of Technology, Atlanta, Georgia 30308

Information Systems Research, 2017, vol. 28, issue 3, 585-602

Abstract: Should a monopolistic vendor adopt the selling model or the leasing model for information goods or services? We study this question in the context of consumer valuation depreciation. Using a two-period game-theoretic model, we consider two types of consumer valuation depreciation for information goods or services: vintage depreciation and individual depreciation. Vintage depreciation assumes that a good or service loses some of its appeal to consumers as it becomes dated, and this effect persists independent of usage. Individual depreciation instead assumes that valuation depreciation happens only for consumers who have consumed or experienced the good or service. We identify conditions under which each pricing model is preferred. For vintage depreciation information goods, the leasing model dominates the selling model in vendor profit. For individual depreciation information goods, the selling model dominates the leasing model as long as the magnitude of individual depreciation exceeds a certain threshold; otherwise, leasing dominates selling. We consider several model extensions such as when network effects are present. Furthermore, we show a negative interaction effect between vintage depreciation and network effects in vendor profit. By contrast, the interaction effect between individual depreciation and network effects can be either negative or positive, depending on the magnitude of individual depreciation. Managerial implications are also discussed.

Keywords: pricing strategies; selling; leasing; vintage depreciation; individual depreciation; network effects; information goods or services (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://doi.org/10.1287/isre.2017.0698 (application/pdf)

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:inm:orisre:v:28:y:2017:i:3:p:585-602

Access Statistics for this article

More articles in Information Systems Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().