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Does the presence of secondary market platform really hurt the firm?

Lipan Feng, Xiong Zheng, Kannan Govindan and Kelei Xue

International Journal of Production Economics, 2019, vol. 213, issue C, 55-68

Abstract: With the rapid development of technology, it becomes increasingly common that consumers buy used products through secondary market platforms. In this way, consumers can directly buy or sell used products without intermediaries. In this paper, we propose a two-period model that captures the critical feature that consumers can independently purchase or sell used products through a secondary market platform. We explore how the firm should strategically decide its production and quality respond to the anticipated trade of used products among consumers through the platform. The results show that two factors, i.e., the depreciation rate and service percentage fee, play an essential role in driving optimal decisions for the firm. First, the presence of a secondary market platform reduces the total production quantity, but the service percentage fee has a positive effect on it. Second, when the firm solely decides its production, regardless of the depreciation rate, the presence of a secondary market platform can increase the firm's gross profit in some situations. Third, when the firm can endogenously determine product quality and production, we obtain a case in which the presence of a secondary market platform is beneficial to the firm and eventually increases product quality. Furthermore, we derive that the above results can be reproduced even when the service percentage fee charged by the platform is endogenous.

Keywords: Manufacturing; Secondary market platform; Production; Quality choice (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:proeco:v:213:y:2019:i:c:p:55-68