Rental of a durable good

Speaker: Jacques Crémer , director of research at University of Toulouse I, Toulouse, France

Coauthors: Cyril Hariton, European Commission, and Sinem Hidir, Toulouse School of Economics.

How should the owner of a durable good rent it to agents who desire to use it for different lengths of time? This question is important for many network industries: there are short run and long run users of gaz pipelines, and airports must choose between giving a particular slot to a regular airline or to keep it open for irregular charter flights. In order to examine this question, we build an infinite horizon stationary model where a monopoly seller rents a good. At each period, a number of potential buyers appear, with different lengths of demand. We study and compare the mechanisms that would be used by a profit maximizing and by a social welfare maximizing seller. We show that, in some precise sense of the term, a profit maximizing seller will favour long term renters.

Published on : Friday 24 October 2014