Monopoly and product quality

During the sharing boom, product lines and add-ons are significant for manufacturers who have established sharing platforms to provide sharing and rental services. In this paper, we consider a manufacturer that provides two products of different quality in the rental channel (i.e., the B2C sharing platform) and the sales channel. We investigate the manufacturer’s product-line selling strategies: either the manufacturer sells low-quality products and rents high-quality products (i.e., the LH product line), or the manufacturer sells high-quality products and rents low-quality products (i.e., the HL product line). We also examine whether to offer the add-on for rental products. The results show that the manufacturer will always offer the add-on. When the add-on value and the degree of quality differentiation are low, the manufacturer will offer the add-on and choose the HL product line; otherwise, the manufacturer will offer the add-on and choose the LH product line. Furthermore, reducing the add-on cost will not always increase the manufacturer’s profit. However, as the add-on cost decreases, the manufacturer will be more likely to offer the add-on and choose the HL product line. Finally, we extend the main model in several ways and verify the robustness of the results.