Trade‐In or Sell in My P2P Marketplace: A Game Theoretic Analysis of Profit and Environmental Impact

Abstract

As more customers purchase pre‐owned apparel, firms are increasingly adopting resale based business models. These models typically operate as either (i) a trade‐in and resale program, wherein a firm offers a trade‐in discount on a new product and resells the traded‐in products, or (ii) a P2P resale marketplace where customers can buy and sell used products to each other. Since different firms choose different resale strategies, it is not clear which strategy is more profitable. Furthermore, although firms that adopt each resale model also promote their environmental benefits, there are concerns that these firms are greenwashing, that is, misrepresenting the environmental benefits of their business models. Hence, we investigate the profitability and environmental impacts of these resale marketplace models and find that the trade‐in model may be more profitable despite the lower reverse logistics cost in the P2P model, and the P2P resale marketplace may be more profitable despite the trade‐in program having direct control over the supply and demand of used products. Furthermore, both models can be better for the environment depending on the product characteristics and perceived quality difference between the used products sold in these programs. We further identify when each model is better for profitability and environment concurrently and when there is misalignment. Other results and managerial insights include comparative pricing of new and used products, market coverage, total sales, and resales, and the impact of product durability on pricing. The insights presented in this study provide useful guidelines for firms, non‐governmental organizations, and environmental advocacy groups.