An advance selling strategy with a trade-in program |
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| Authors: | Jie Wu Junjie Huang Xiang Ji Zhixin Chen |
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| Affiliation: | School of Management, University of Science and Technology of China, Hefei 230026, China |
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| Abstract: | Recently, advance selling and trade-in programs have become increasingly popular in many industries. While previous studies have examined these two strategies individually, the combination of both strategies has not been studied. Inspired by business practices, we investigate an emerging advance selling strategy (hereinafter, the AT strategy) that utilizes the trade-in concept as a reward or discount for participating in the advance selling program. This study explores a seller’s optimal pricing decision and profit when using the AT strategy, traditional advance selling (AS), and traditional trade-in (TN) strategies. We find that, compared to AT strategy, it is better for the seller to adopt the AS strategy when the salvage value of used products is sufficiently low and the product cost is not too small. In addition, compared to TN, when the salvage value and product cost are relatively low, the seller should adopt the AT strategy under most circumstances. Furthermore, we demonstrate that sellers can still gain profits when the product price is extremely high under the AT strategy. Even if consumer utility is negative during the advance selling period, consumers are willing to participate in AT programs because the total consumer surplus from buying two generations of products is positive. |
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| Keywords: | advance selling trade-in product durability salvage value strategic consumer |
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