Decision Making by Trade-In Programs in the E-Commerce Supply Chain, Considering Cash Rebate Strategies and Platform Services

Abstract

As the consumer market becomes more saturated, the e-commerce supply chain (E-SC) has introduced the trade-in program in an attempt to drive consumption. This paper considers the strategy of the E-SC to provide cash rebates for consumers participating in the trade-in program and incorporates the e-commerce platform’s trade-in service efforts into the E-SC’s decision-making system. Depending on who provides the cash rebate, we construct four decision-making models of the E-SC, i.e., the no-cash-rebate model, the manufacturer model, the platform model, and the cooperative model, where both the manufacturer and the platform jointly provide the cash rebate. We show that the platform model reduces the trade-in service level, but the manufacturer model increases the trade-in service level. In addition, since the cash rebate increases operation costs, the sale price of products is inevitably improved. Furthermore, the platform model raises product demand, but the manufacturer model lowers product demand. The cooperative model proves effective in enhancing demand only when the manufacturer contributes a minor share of the cash rebate and the trade-in service is less efficient. Cash rebates can increase the E-SC’s profits, but the degree of this increase becomes smaller as the cash rebates increase. The manufacturer and the platform always want to exploit each other’s cash rebate strategies. Consumer surplus and social welfare are highest in the platform model and lowest in the manufacturer model. Taking into account the profits, consumer surplus, and social welfare, the platform model is the most conducive to E-SC system operations.