Updated‐generation product introduction decisions under trade‐in programs and different pricing strategies

Abstract

Manufacturers introduce updated‐generation products to meet intensified competition under trade‐in programs. Based on this phenomenon, we built a two‐period game‐theoretic model, in which the manufacturer sells the old‐generation product during both periods and considers whether to introduce the updated‐generation product in the second period. We find that under a static pricing strategy, if the costs of both products are low, the updated‐generation product's entry increases the old‐generation product's retail price. The manufacturer cannot benefit from introducing the updated‐generation product if the updated‐generation product's cost is high. Under a dynamic pricing strategy, the updated‐generation product entry benefits both the manufacturer and the consumer.