SELLER FINANCING OF CONSUMER DURABLES

Sellers of consumer durables often provide financing to customers. Thi s paper shows that when customers desire consumption smoothing and whe n financial markets are imperfect, a seller can find it optimal to off er a menu of deferred-payment plans. A monopolist seller price discrim inates among customers with different intertemporal income profiles by making such menu offers, and the interest rate on the seller credit c an be significantly lower than the market borrowing rate. Seller finan cing can be an equilibrium outcome in a game where sellers and banks w ith market power choose payment plans and interest rates strategically .