Optimizing prices in trade-in strategies for vehicle retailers

Abstract

In the vehicle industry, there are two trade-in services: TONF, that is trade-in for a new oil-fueled automobile (OFA), and TONE, that is trade-in for a new energy vehicle (NEV). So, when TONE and TONF coexist, how can companies make trade-offs among different trade-in strategies and formulate the corresponding optimal pricing. Therefore, considering the different of consumer’ mileage anxiety to NEVs, a supply chain trade-in game model composed of a manufacturer and a retailer was constructed. It not only discusses the threshold conditions for retailers to offer only TONE, TONF and both, but also gives the corresponding optimal pricing decision. We found the following: the retailer's trade-in strategy is not only affected by the production cost, but also related to the manufacturer’s recycling prices. Consumers’ mileage anxiety about NEVs will also have an important impact on the choices of retailers’ trade-in strategy, especially when the production cost is in the middle. Government subsidies for NEVs, durability and residual value gains of OFAs have a huge impact on retailers' choice of trade-in strategies when consumers have greater mileage anxiety, but have no effect when consumers have less mileage anxiety. When consumers have different mileage anxiety of NEVs, the retailer chooses the optimal trade-in strategy in the case of less mileage anxiety (Case Ⅱ) and may not be able to achieve ideal profits.