Trade-in strategy for durable products in the presence of a peer-to-peer second-hand marketplace

An infinite-period model is established to examine a firm’s long-term trade-in strategy in the presence of a P2P (peer-to-peer) second-hand marketplace. The firm can choose whether to adopt a trade-in strategy and determines the prices of new products with and without trade-ins. In addition to purchasing new products with or without trade-ins, consumers can trade used products on the P2P marketplace. We study a benchmark scenario in which the transaction fee rate of the marketplace is exogenously given and extend it to a scenario where the transaction fee rate is endogenously determined by the marketplace (called the “former scenario” and “latter scenario” for short). The main results are as follows: (1) There is a threshold for the transaction fee rate under which the marketplace exists. In the benchmark scenario, the firm will not adopt the trade-in strategy when product durability and production costs are both high. In the scenario with an endogenous transaction fee rate, the firm can always benefit from adopting the trade-in strategy since the marketplace adjusts the transaction fee rate to make it acceptable to the firm. In addition, the transaction fee rate decreases in product durability and production costs. (2) We compare the former scenario with the latter scenario and find if product durability and production costs are both high, the firm can obtain a higher profit and set a higher discount for trade-in consumers in the latter scenario; otherwise, the firm can obtain a higher profit and set a higher discount in the former scenario.