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

Abstract

A s 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.

(Un)conditional collection policies on used products with strategic customers

“…Jiang et al (2017) study the profitmaximizing marketplace's optimal decision of transaction fees. Vedantam et al (2021) compare profitability and environmental impacts of the two strategies: when the firm offers a trade-in program and when the firm establishes a resale marketplace. Our work investigates both the buyback and Production and Operations Management trade-in policies, and highlights how the existence of the secondary market affects the choice of the used products collection policy.…”

Managing demand slowdown: The interplay between trade‐ins and quality improvement

“…Moreover, their results indicate that the trade-in program can effectively ameliorate "lemon" problems in the secondary market. Vedantam et al (2021) compare the effects of offering a trade-in program and establishing its P2P resale marketplace on the firm's profit and environmental performance. Cao and Choi (2022) analyze the optimal return policy under the trade-in program.…”

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

“…Cao and Choi (2022) developed a stylized analytical model to explore the optimal choice of trade-in return policy. Vedantam et al (2021) researched that different businesses choose different resale strategies and find out which strategy is more profitable for them.…”

“…In particular, we focus on the effect of manufacturer’s product upgrading on the retailer entrant’s decisions. To describe the problem, we make three key assumptions: first, we assume that consumers’ quality valuations are heterogeneous, which we can reference (Vedantam et al , 2020) that consumers’ willingness to pay for the used products is δθ , where δ represents the durability of the product, so that used product markets can be explicitly modeled. Second, to provide useful insights about retailers’ entry into the secondary market, we assume that retailers have the ability to enter an active secondary market that is not controlled by the manufacturer.…”