Integration strategies of luxury rental operations: is it wise to operate with the manufacturer or co-operate with the competitor?

Abstract

Luxury rental operations are increasingly popular nowadays. In this study, we develop game-theoretical models to examine the optimal renter’s integration strategies (RISs) in a luxury supply chain with conspicuous consumers. The luxury supply chain consists of one manufacturer, one seller and one renter. Based on observed industrial practices, we compare three RISs, namely non-integration (the renter works on his own), vertical integration (the renter operates with the manufacturer) and horizontal integration (the renter co-operates with the seller). The main findings are as follows. First, integration is not always a wise strategy for the renter. When the proportion of conspicuous consumers (PCC) is sufficiently high, the renter should work on his own. When the PCC is lower than a threshold, the optimal RIS depends on the trade-off between the double-marginalisation and retail competition effects. Second, we evaluate the environmental impacts of RISs and uncover that the environmental effects depend on the product types’ environmental impact. We further identify the conditions how a dominating situation with respect to profitability and environmental impact can be achieved (called ‘PE dominating’). Third, we investigate the effects of consumer segmentation on the optimal RIS. Managerial implications are discussed.