Sales or rentals? price and service decisions for electric vehicle manufacturers

Abstract

Innovative business models are emerging to promote the popularization of electric vehicles. This study investigates a firm's service innovation strategy and the choice between sales and rental business models in the presence of consumer behavioral preferences and service innovation subsidies within a given supply chain. The optimal price and service quality decisions are unique and determined by a profit-maximization model. We find that when customers have an obvious preference for high quality service or a relatively low preference for traditional sales model, the firm will profitably invest in service innovation. The firm will choose the rental model and offer a higher level of service rather than the sales model when the customer preference for traditional sales is relatively low or customers are more constrained by the initial purchase price. We also examine the efficiency of service innovation subsidy policy and find that service innovation subsidy will promote the adoption of electric vehicles and improve service quality. Our analysis also suggests that policy makers should set the appropriate service innovation subsidy rather than the higher the better.