Maintenance Service Strategy For Leased Equipment: Integrating Lessor-Preventive Maintenance And Lessee-Careful Protection Efforts

Lessees may abuse equipment during the lease period since lacking of ownership, thereby increasing lessors' repair cost and lessees' downtime losses. This study integrates lessees' effort to protect leased equipment during the lease period with lessors' preventive maintenance (PM) into maintenance service strategies. It is proved in a non-cooperative game, neither party achieves the cooperative game's ideal revenue, but improvement in the lessee's effort level and lessor's PM degree can increase the other party's revenue. A cost-sharing contract model is designed to achieve the maximum revenue as in a cooperative game and ensure Pareto improvement of the leasing parties. In the contract, the lessor grants the lessee a rental discount, and the lessor's PM cost and lessee's effort cost are shared with cost-sharing coefficients. Conditions under which the ideal revenue and Pareto improvement can be achieved are discussed. Numerical examples are provided to illustrate the effects of contract parameters, unit penalty on the effort level, and revenue. Managerial insights are finally proposed for leasing parties. The results show: the effect of the effort level and PM degree on equipment failures is marginally diminishing; proposed cost-sharing contract model can achieve the ideal revenue and Pareto improvement; the rental discount has a greater impact on the lessee, while the cost-sharing coefficients have a greater impact on the lessor; and increasing the unit penalty decreases (increases) the lessor's (lessee's) revenue but maintains the effort level at constant.