Cannibalization or Enhancement: Effects of Consumer-to-Consumer Resale with Consumers’ Utility Dependence

Abstract

ABSTRACT Consumer-to-consumer resale platforms (CRPs) facilitate redistribution of used products. After getting rid of their used items, consumers may repurchase new items from the retailer, obtaining an additional utility due to their dependence on the retailer’s products. The retailer can capitalize on this behavior by embracing CRPs to encourage repeat purchases and drive revenue. This article constructs a two-period analytical model of an e-commerce marketplace comprising a retailer (new-product market) and a CRP (used-product market), to examine the implications of CRPs for the retailer and forward-looking consumers. Consumers are heterogeneous in two aspects: utility dependence from repeat purchases and perception of used-product quality levels. Our findings show that utility dependence mitigates the direct competition posed by the CRPs to the retailer. The retailer leverages consumer heterogeneity to exacerbate intertemporal price discrimination, generating enhancement and cannibalization effects on revenue. The enhancement effect dominates to increase the retailer’s revenue, except when new-product consumption yields a high value to consumers and the CRP’s commission rate is high. Counterintuitively, consumers and the retailer can be better off or worse off simultaneously. Coupled with the CRP’s revenue reaped from used-product transactions, social welfare is likely to improve with the addition of this entity. Moreover, the retailer can be better off as an external CRP sets the commission rate to maximize its own revenue, while it can further benefit from self-managing a CRP when the marginal operating cost is low.