Concurrent Renting and Selling in a Durable-Goods Monopoly under Threat of Entry

Abstract

This article analyzes the choice of contract (sales or rental) of a durable-goods monopolist facing a threat of future entry. Although in the absence of such a threat a monopolist would prefer to rent his entire output, we show that the threat of entry alters that preference. There is an optimal preentry contract mix, involving both rental and sales. If both firms behave as Cournot duopolists after entry, the optimal choice of preentry contracts enables the erstwhile monopolist to gain the same profits as he would if he behaved as a von Stackelberg leader.

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