Leveraging strategic consumer behavior in consumer-to-consumer resale: From economic and environmental perspectives

Abstract

To generate profits and support a sustainable environment, forward-looking firms are adapting to the trend of used-product transactions among individual consumers. Incorporating consumers’ strategic waiting and reselling behaviors, we investigate the effects of consumer-to-consumer (C2C) resale platform (CRP) on the market from both economic and environmental perspectives. In a two-period setting, a retailer dynamically sets prices to sell new products and a CRP provides a venue for used-product transactions. Consumers are heterogeneous in their valuations for new and used products, which play a vital role in market formation. Our results indicate that all market participants can profit from the presence of CRP, albeit at the expense of aggravated environmental impact. Specifically, with the CRP sustaining used-product transactions, the retailer intensifies intertemporal price discrimination in most situations. The new-product demand increase in each period, producing a demand-expansion effect, while the new-product prices across periods may either decrease or increase. The demand-expansion effect is sufficiently strong to improve the retailer's revenue when consumers perceive a medium value of used products. Otherwise, the price reduction dominates to worsen the retailer's revenue. The retailer can benefit from the rise of CRP by leveraging consumers’ strategic behaviors, despite competing with it for demand. Importantly, the consumers and the retailer are likely to hold the same preference over the establishment of CRP. In this situation, coupled by the CRP’s revenue received from used-product transactions, social welfare improves with the addition of this market entity, leading to a win-win situation. Nevertheless, the demand-expansion effect arising from the presence of CRP aggravates the environmental impact, contrasting with the ethos of environmental friendliness held by the retailer and the consumers. Moreover, the existence of a disposal option to salvage used products at a positive value makes it less likely for the retailer to benefit from the existence of CRP and leads to a heavier environmental impact.