Manufacturer’s Leasing Channel Management in a Car Supply Chain

Thanks to the convenient and hassle-free manner of leasing service, the car leasing industry has flourished in recent years. To leverage commercial opportunities, many well-known car manufacturers have chosen to enter the leasing market rather than focus solely on the selling market. An interesting phenomenon is that some manufacturers establish their own leasing departments to gain revenue from the leasing market (referred to as centralization), while other manufacturers conduct their leasing businesses through an autonomous leasing company (referred to as decentralization). In this paper, we propose a game-theoretic model to explore whether a car manufacturer should manage a leasing department in a centralized channel or have the leasing business done by an autonomous company in a decentralized channel. We demonstrate the optimal pricing policy for the manufacturer, dealer, and leasing department/company under both centralization and decentralization. In the main model, we assume that the consumer experience value preference follows a uniform distribution, and leasing brings consumers a better experience value than purchasing, and we normalize the marginal production cost of the product to zero. Our analysis reveals that neither centralization nor decentralization is always optimal, and the related boundary is analyzed. An interesting finding is that as the consumers’ leasing experience value rises, the dealer obtains higher profit, even though it serves fewer consumers in the decentralized channel. In the extension, we relax our assumptions to examine the impact of a normal distribution of consumer experience value preferences, a large purchasing experience value, and a non-negligible production cost, and we find that most of the main model results still hold qualitatively.