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The consumer's rent vs. buy decision in the rentailer

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  • Knox, George
  • Eliashberg, Jehoshua

Abstract

In this paper, we focus on the perspective and business model of the rentailer — a retail outlet that rents and sells new and used home video titles. This requires predicting the consumer's decision to rent or buy a particular title, segmenting its customer base, and pricing new and used titles. We develop a new model based on a simple heuristic found in the behavioral marketing literature of how people predict their own usage of a service. We estimate the model using a unique panel dataset obtained from a large rentailer, and find it provides a good fit to the data. Using the model estimates we obtain a metric indicating a latent customer tendency to buy at full price (compared to buying at a lower price or renting). Other diagnostic information from the model may help convert renters into buyers. First, expected viewing may be pitched to the consumer in order to persuade consumers that the movie will be well utilized. Secondly, we use the model to generate customized new and used title prices.

Suggested Citation

  • Knox, George & Eliashberg, Jehoshua, 2009. "The consumer's rent vs. buy decision in the rentailer," International Journal of Research in Marketing, Elsevier, vol. 26(2), pages 125-135.
    • Handle: RePEc:eee:ijrema:v:26:y:2009:i:2:p:125-135
    DOI: 10.1016/j.ijresmar.2008.12.004
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    References listed on IDEAS

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    1. Jehoshua Eliashberg & Anita Elberse & Mark A.A.M. Leenders, 2006. "The Motion Picture Industry: Critical Issues in Practice, Current Research, and New Research Directions," Marketing Science, INFORMS, vol. 25(6), pages 638-661, 11-12.
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    Cited by:

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    2. Jordi McKenzie, 2023. "The economics of movies (revisited): A survey of recent literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 480-525, April.
    3. Lee, Sanghak & Kim, Hyowon & Kim, Jaehwan & Allenby, Greg M., 2018. "A choice model for mixed decision variables," Journal of choice modelling, Elsevier, vol. 28(C), pages 82-96.
    4. Marchand, André, 2016. "The power of an installed base to combat lifecycle decline: The case of video games," International Journal of Research in Marketing, Elsevier, vol. 33(1), pages 140-154.
    5. Anita Rao, 2015. "Online Content Pricing: Purchase and Rental Markets," Marketing Science, INFORMS, vol. 34(3), pages 430-451, May.
    6. Sonnier, Garrett P., 2014. "The market value for product attribute improvements under price personalization," International Journal of Research in Marketing, Elsevier, vol. 31(2), pages 168-177.
    7. Daniel Trabucchi & Laurent Muzellec & Sébastien Ronteau, 2019. "Sharing economy: seeing through the fog," Post-Print hal-03718526, HAL.
    8. Gong, Jing & Smith, Michael D. & Telang, Rahul, 2015. "Substitution or Promotion? The Impact of Price Discounts on Cross-Channel Sales of Digital Movies," Journal of Retailing, Elsevier, vol. 91(2), pages 343-357.
    9. Pei-yu Chen & Shin-yi Wu, 2013. "The Impact and Implications of On-Demand Services on Market Structure," Information Systems Research, INFORMS, vol. 24(3), pages 750-767, September.

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