Price distortion forced by recycling competition under trade-in collaboration

Abstract

Renowned brands and recycling agencies tacitly integrate their business flows together in the current trade-in industry. The collaborative trade-in programme breaks the hierarchy of closed-loop supply chains and provides seamless services for consumers. In this study, we develop a stylised model to capture the change in supply chain structure and scrutinise trade-in collaboration and recycling competition between sellers and recyclers. We find that, under intensive recycling competition, price targeting new consumers is downward distorted by the seller to occupy more trade-in demands in the old consumer segment. Meanwhile, the rebate of the recycler is suppressed by the collaboration constraint. By distorting the price, the seller obtains the predominance in recycling competition while sacrificing part of profits from new consumers. The price distortion indicates the competition spill-over from the old consumer segment to the new consumer segment. Furthermore, the establishment of autonomous recycling reaches a Pareto improvement for the whole system when the competition is mild; otherwise, these two entities fall into a zero-sum scenario. Our study offers insights into recycling value allocation and trade-in partner choice and, theoretically, contributes to the economic literature that price distortion can even be forced by competition with the absence of information asymmetry.