Lease or sale: When a durable goods monopolist can choose supply chain openness

We construct a two-period model of supply chain openness in a durable goods market with two marketing modes: leasing and selling. For a given marketing mode, at the beginning of the first period, an incumbent supplier and the downstream monopolist choose one of two trading modes: (i) a two-period exclusive supply chain, or (ii) an open supply chain, allowing the downstream monopolist to trade with an efficient supplier in the second period. We show that in the selling mode, the exclusive supply chain can arise if the incumbent supplier is highly efficient. In contrast, under the leasing mode, the exclusive supply chain never arises; instead, the open supply chain is always selected. Furthermore, when the downstream monopolist is allowed to endogenously choose the marketing mode before the first period, it opts for the selling mode if the incumbent supplier is relatively inefficient; otherwise, it selects the leasing mode. Regardless of the chosen marketing mode, the open supply chain always arises on the equilibrium path, implying that the recent advancement of ICT to enhance leasing may discourage the adoption of exclusive supply chains.