 Optimal pricing strategy under trade-in program in the presence of strategic consumersJingchen Liu, Xin Zhai and Lihua Chen Omega, 2019, vol. 84, issue C, 1-17 Abstract: Many innovating firms use trade-in programs to encourage consumers’ repeat purchasing. They can choose between dynamic pricing and preannounced pricing strategies to mitigate the impacts of consumers’ strategic behavior. This paper develops a dynamic game framework to explore the optimal pricing strategy when the firm sequentially introduces new generations of products to a market populated by strategic consumers with trade-in option offered. Results show that under either pricing strategy, the firm has an incentive to sell the old generation products to new consumers in the second period if the salvage value of the old generation product is high enough. When consumers are sufficiently strategic, if both the innovation incremental value of the new generation product and the salvage value of the old generation product are low enough, the firm is better off following the preannounced pricing strategy. Besides, as the firm becomes more farsighted, the comparatively dominant position of preannounced pricing over dynamic pricing disappears gradually. Keywords: Pricing strategy; Trade-in program; Strategic consumer; Sequential innovation; Market heterogeneity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:84:y:2019:i:c:p:1-17 Ordering information: This journal article can be ordered from DOI: 10.1016/j.omega.2018.03.005 Access Statistics for this article Omega is currently edited by B. Lev More articles in Omega from Elsevier |
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