Strategic choice in durable goods market when firms move simultaneously

Abstract

We study the strategic impact on the choice between two commercial transactions, namely, renting and selling, by the competing firms in a durable good market. In the literature, it has been generally shown that given a choice between renting (leasing) and selling, a monopoly firm will choose renting in order to maximize its profits. This is also what coase [J. Law Econ. 15 (1972) 143] conjectured while studying the behaviour of a durable goods monopolist. We show that under a strategic framework, when we consider a simultaneous move game between two symmetric durable good firms, who have the option to choose between renting and selling, selling turns out to be the unique dominant strategy of the firms. Moreover, it leads to a prisoners' dilemma situation. © 2004 University of Venice. Published by Elsevier Ltd. All rights reserved.