Strategic decisions of sales and pay-per-use rentals under incomplete product availability
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Strategic decisions of sales and pay-per-use rentals under incomplete product availability Ping Yan1 · Jun Pei1,2 · Altannar Chinchuluun3 Received: 7 May 2019 / Accepted: 30 December 2019 © Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract Motivated by the fact that pay-per-use rentals require firms to be responsible for the the operational costs of products and service support network, we establish a pay-per-use rental model where a firm strategically sets the availability of products for rentals to achieve the trade-off between production quantity and operational costs. Furthermore, based on the traditional sale model, we also propose a combined model of sale and pay-per-use rental. The objective is to maximize firm’s profits under three models: the sale model, the pay-per-use rental model, and the hybrid model of sale and rental. The approach of backward induction is adopted to obtain the firm’s optimal decisions on pricing and production volume. Through comparative analysis, we provide the firm’s global optimal strategic solution, and the corresponding solutions in different market environments are developed, respectively, due to the variance of polling effects and costs. The results show that under the no-pooling case where customers’ requests overlap completely, the hybrid model always show higher profitability than the pay-per-use rental model, and it performs better than the sales model only when the per-unit operational and production costs are low. Under the perfect-pooling case where customers’ requests do not overlap, the hybrid model is always the optimal strategy. Numerical experiments are also conducted to illustrate the results under the general pooling case. Keywords Strategic solutions · Pay-per-use rentals · Product availability · Operational costs
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Jun Pei [email protected] Ping Yan [email protected] Altannar Chinchuluun [email protected]
1
School of Management, Hefei University of Technology, Hefei, China
2
Key Laboratory of Process Optimization and Intelligent Decision-Making of Ministry of Education, Hefei, China
3
Business School, The National University of Mongolia, Ulaanbaatar, Mongolia
123
Journal of Global Optimization
1 Introduction With the development of technologies in the mobile internet and internet of things, the innovative business models that provide customers with a temporary access to products rather than the permanent ownership has emerged in various industries [2]. In the automobile industry, General Motors allows customers to rent its cars on an hourly basis through its Maven platform, though the service is provided with a limited fleet in some cities [19]. Similar strategies have also been adopted by some bike-sharing companies. In the industry of high-end equipment, some firms develop the rental business as well. For example, Aercap leases their aircrafts out based on flight time or mileage [1]. Now it has constructed a global network of 200 airline customers in 80 countries. The pay-per-use rental model has shown some
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