Year: 2018
Type: article
Abstract: The rent‐to‐own (RTO) industry given its emphasis on subprime or, at least, financially constrained consumers is often seen as exploitative with excessive financing costs. This paper develops a rational‐expectations competitive equilibrium model to explore the pricing mechanism of an RTO agreement. The model accounts for the contract's embedded options and several bundled services. Using detailed transactional data, we infer how customers exercise these options to calibrate our model for several product categories, contractual lengths and payment periodicity. The resulting predictions provide a justification for the high financing costs observed in the marketplace.
Source: Journal of Consumer Affairs
DOI: 10.1111/joca.12216
Authors: Sanjiv Jaggia, Hervé Roche, Michael H. Anderson
Institution: California Polytechnic State University
Language: English
Subfield: Marketing
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W2808677648