The retailer’s trade-in activity under the manufacturer’s upgrading strategy

Abstract

PurposeThis paper aims to study the impact of manufacturer’s upgrading strategy of durable products on the retailer’s decision on trade-in program and her decision on the secondary market.Design/methodology/approachThis paper develops a channel that consists of a manufacturer and a retailer, where the manufacturer releases an upgraded product, and the retailer introduces a trade-in program for consumers, simultaneously, decides whether to enter the secondary market. These approaches are modeled through Stackelberg game.FindingsThis paper reveals that the optimal conditions for manufacturer to release upgraded products and retailer to resell used products in the secondary market, and it reveals that under what conditions it is profitable for retailer to enter the secondary market under product upgrade levels.Practical implicationsIf the manufacturer’s upgrade level is low, it is profitable for the retailer to enter the secondary market. However, if the manufacturer’s upgrade level is high, it is unprofitable for the retailer to enter the secondary market.Originality/valueIn this paper, the active secondary market, upgrading of new products, consumer market segmentation and especially, the upgrade degree of new products as a function of consumer demand are considered simultaneously.