Optimal pricing and trade-in policies in a dual-channel supply chain when considering market segmentation

Lipan Feng, Yongjian Li, Fangchao Xu and Qianzhou Deng

International Journal of Production Research, 2019, vol. 57, issue 9, 2828-2846

Abstract: Many companies are implementing trade-in programmes through multiple channels. This may ultimately lead to fiercer channel conflict and competition. Few studies have explored firms’ optimal trade-in policies in such an environment. To fill the gap, we build a theoretical model that captures the features of a dual-channel situation in which a manufacturer implements a trade-in programme through retail and direct channels simultaneously. Compared with the case in which there is no trade-in rebate, the results show that a trade-in programme can intensify or mitigate the double marginalisation effect if the retailer can initially decide the trade-in rebate in the retail channel. This significantly relies on market segmentation. However, when the retailer cannot decide the trade-in rebate in the retail channel, the trade-in programme aggravates the double marginalisation effect. Second, the trade-in rebate offered by the retailer may be higher than the subsidy offered by the manufacturer, as long as the retailer can autonomously decide the trade-in rebate in the retail channel. Furthermore, we find that both the manufacturer and retailer prefer to obtain the right to autonomously decide the trade-in rebate in the retail channel, but the supply chain prefers that the manufacturer do it. Some numerical examples are provided to further explain these outcomes.

Date: 2019
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Citations: View citations in EconPapers (13)

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DOI: 10.1080/00207543.2018.1551636

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