Optimal trade-in and third-party collection authorization strategies under trade-in subsidy policy

Abstract

PurposeThis paper aims to study whether the recycling of a third party competes with the trade-in service of a manufacturer, and explores the optimal trade-in and third-party collection authorization strategies for the manufacturer.Design/methodology/approachAccording to whether to authorize a third party to collect its used products, the manufacturer has two choices: one is not authorization (NA); the other is authorization (A). This paper uses profit-maximization model to investigate the optimal decisions of the manufacturer and the third party under NA and A, respectively, and then explores which choice is better for the manufacturer.FindingsIt is observed that there is a competition between trade-in service and third-party recycling when the durability parameter of the used product is relatively small. Moreover, when the durability parameter of the used product is relatively large, A is always better choice for the manufacturer; otherwise, NA is a better choice except for the case that the unit trade-in subsidy is low and the salvage of the used product is high.Practical implicationsThese results provide managerial insights for the manufacturer and the third party to make decisions in the field of recycling.Originality/valueThis paper is among the first papers to study the competition between trade-in program and third party’s collecting program under government’s trade-in subsidy policy. Moreover, this paper presents the conditions under which the manufacturer should authorize or not authorize the third party to collect its used products.