Self-building or cooperating with a service platform: how should a dual-channel firm implement a trade-in program?

Business practices demonstrate that firms can offer dual-channel trade-in programs by cooperating with a third-party trade-in service platform (i.e., cooperation mode) or on their own (i.e., self-building mode). This paper develops an analytical model to investigate the effect of a specific trade-in operation mode on the profitability of a dual-channel firm that implements a trade-in program. We characterize the equilibrium between the firm and the service platform. We identify the threshold of the self-building operational cost, above (below) which the firm’s profit under the self-building mode is less (greater) than that under the cooperation mode. We find that the cooperation mode is more beneficial to both consumers and a firm compared with the self-building mode when the consumer waiting cost is minor-to-moderate and the market potential of the cooperation mode is relatively high, which will improve social welfare due to the decrease in operational cost and product price. Finally, we consider a cooperative bargaining situation under the cooperation mode. We find that both the firm and the service platform will obtain more profits from the bargaining solution in a bilateral negotiation compared with the case of a dynamic game.