
Prof. Alessandro Gavazza of London School of Economics on mortgages, cars and market friction
Scientific Sense ®
00:00
The Best Selling Strategy of a Durable Good Producer?
Manufacturers have to create durable cars because they don't really benefit from the secondary market transaction. So in manufacture that makes highly durable high quality cars would want them to lease them and buy them back, right? Would that be more dominant choice? You're asking a question that in economics has been studied extensively. What is the optimal selling strategy of a durable good producer? It turns out that in many cases it would be optimal for a manufacturer to lease these cars exactly because it has a little bit more control over the secondary market for these cars.
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