Some years ago, an article appeared in the New York Times about IBM’s pricing policy. The previous day, IBM had announced major price cuts on most of its small and medium-sized computers. The article said:
IBM probably has no choice but to cut prices periodically to get its customers to purchase more and lease less. If they succeed, this could make life more difficult for IBM’s major competitors. Outright purchases of computers are needed for ever larger IBM revenues and profits, says Morgan Stanley’s Ulric Weil in his new book, Information Systems in the 80’s. Mr. Weil declares that IBM cannot revert to an emphasis on leasing.
a. Provide a brief but clear argument in support of the claim that IBM should try to “get its customers to purchase more and lease less.”
b. Provide a brief but clear argument against this claim.
c. What factors determine whether leasing or selling is preferable for a company like IBM? Explain briefly.