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Seller Financing of Consumer Durables
Author(s) -
Sen Arijit
Publication year - 1998
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1998.00435.x
Subject(s) - payment , imperfect , outcome (game theory) , interest rate , business , consumption (sociology) , microeconomics , economics , finance , monetary economics , philosophy , sociology , social science , linguistics
Sellers of consumer durables often provide financing to customers. This paper shows that when customers desire consumption smoothing and when financial markets are imperfect, a seller can find it optimal to offer a menu of deferred‐payment plans. A monopolist seller price discriminates among customers with different intertemporal income profiles by making such menu offers, and the interest rate on the seller credit can be significantly lower than the market borrowing rate. Seller financing can be an equilibrium outcome in a game where sellers and banks with market power choose payment plans and interest rates strategically.