Optimal trade-in delegation strategy considering store brand introduction and different power structures

Abstract

Listen

Translate article

In recent years, retailers have increasingly introduced their store brands, which have had a huge impact on the OM of incumbent-brand manufacturers. Given that some manufacturers in practice provide trade-in services themselves while others delegate trade-in services to retailers, incumbent-brand manufacturers, who are suppliers to retailers with store brands, face the challenge of determining optimal trade-in delegation strategy. To address this challenge, our paper develops theoretical models to explore optimal trade-in delegation strategies under different power structures (i.e. manufacturer-leading, retailer-leading, and vertical Nash). The results show that the optimal trade-in delegation strategy of the manufacturer and the optimal delegation acceptance strategy of the retailer mainly depend on the fixed costs of providing trade-in services. Moreover, as the leadership power of the manufacturer increases, the manufacturer’s willingness to delegate trade-ins will increase, but the retailer’s willingness to accept trade-in delegation will decrease. Improving the quality of the store brand will reduce the trade-in delegation willingness of the manufacturer but will improve the delegation acceptance willingness of the retailer. In the extended cases, the optimal trade-in delegation strategy still holds considering the cap-and-trade policy, but it reduces the retailer’s willingness to accept trade-in delegation considering store brands participating in trade-ins.