Competitive strategy for on-line leasing of depreciable equipment

This paper studies the problem of on-line leasing of depreciable equipment. We first discuss deterministic strategies for the problem for situations with and without interest rates, respectively. Competitive ratios are used to evaluate the performance of online algorithms. The optimal competitive ratio of the deterministic strategy is therefore obtained. As randomization can boost performance, the randomized strategy for on-line leasing of depreciable equipment with oblivious adversary is further proposed. The main difference between the deterministic algorithm and the randomized algorithm is that the introduction of an interest rate decreases the optimal deterministic competitive ratiowhile it increases that of the latter. By comparison, we find that the introduction of a depreciation factor improves the competitive performance and the model is more practical for on-line leasing of depreciable equipment. Finally, we conclude that the competitive ratio is closely related to the transaction costs and the profitability in the leasing business. © 2011 Elsevier Ltd. All rights reserved.