Optimal trade-in strategy for advance selling with strategic consumers proportion

Yefeng Wang, Li Zhou and Chuanliang Wu

PLOS ONE, 2023, vol. 18, issue 1, 1-18

Abstract: Purpose: This study aimed to optimize the trade-in pricing strategy. To leverage market share, many sellers adopt trade-in strategy for advance selling, Customers can return their old products at a discount price when they buy new products. This can help increase the market share and decrease natural resource consumption. Design/Methodology/Approach: We consider a seller who sells new-generation products over two periods: advance selling and regular selling. Based on the rational expectation equilibrium, we adopt dynamic programming to construct a two-period pricing model with three different trade-in strategies–only in period 2, in both periods, and not at all–explaining the trade-in strategy as a promotion tool used by a monopolist to discriminate for advance selling between new and old customers. Findings: The results suggest that the optimal price is determined by the proportion of old customers, discount factor and product innovation level. Whether and when to give a trade-in rebate to old customers depends on these parameters. The seller’s choice of optimal trade-in strategy depends on the threshold value of the new customer demand and trade-in demand. Originality/Value: Most existing literature focuses on advance selling strategies and trade-in strategies. To the best of our knowledge, this is a pioneering study that adopts trade-in as part of the advance selling strategy.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0273124

DOI: 10.1371/journal.pone.0273124

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