Explain the commitment problem faced by the monopolist of a durable good. How can renting or leasing the product be a solution to the problem?

The main idea is that the monopolist normally charges high prices from consumers under normal circumstances, especially from customers who have a high willingness to buy, but occasionally, the monopolist may reduce prices for one day, and the consumer buying would naturally increase prices, the next day.

It is believed that monopoly supplier quotes prices that are beyond their control of buying, especially in the short period. Under such circumstances, when prices are quoted for a time-consistent period, and when the buyer accurately predict future prices, it is better for the seller, in terms of benefits, to take recourse to the leasing of goods or some kind of pricing protective mechanism that could make it virtually impossible for the seller to resort to future price cutting.

Many experts, who feel that current buyers do try to understand the implications of their current buyers on future pricing, have questioned the aspect of whether the buyer feels that future pricing is beyond their control.

It has been found that selling without price commitments have been more beneficial to the sellers than selling with price commitments. Coming to the second part of the question, it is seen that renting or leasing does not hold any price commitments and therefore, in such cases, it is seen that the profit of the sellers would be higher than that of sale with price commitments. Moreover, the future pricing trends could be more easily gauged in cases of renting and leasing, and therefore it may be considered a safer bet for monopoly establishments.

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Academic.Tips. 2022. "Explain the commitment problem faced by the monopolist of a durable good. How can renting or leasing the product be a solution to the problem?" June 21, 2022. https://academic.tips/question/explain-the-commitment-problem-faced-by-the-monopolist-of-a-durable-good-how-can-renting-or-leasing-the-product-be-a-solution-to-the-problem/.

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