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

Abstract

With more customers purchasing pre-owned or used products in the apparel industry, firms are increasingly adopting resale based business models generally through either a:

(i) trade-in with a resale program, where a firm offers a trade-in discount on a new product and resells the traded-in products, or a

(ii) P2P resale marketplace, where the firm facilitates a resale marketplace in which customers can buy and sell used products to each other.

Since both resale strategies are utilized by different apparel firms, it is not clear which strategy is more profitable in a given context. Further, firms that adopt each resale model also promote their environmental benefits and there are concerns that these firms are green-washing, i.e., misrepresenting the environmental benefits of their business models. Although it is an important issue for the apparel industry, to the best of our knowledge, the literature has not rigorously analyzed the profitability and environmental impacts of the trade-in and P2P models concurrently. We attempt to fill this gap in the literature and investigate the profitability and environmental impacts of the trade-in and P2P resale marketplace models.

We find that the trade-in model may be more profitable despite the lower reverse logistics cost in the P2P model, and P2P resale marketplace may be more profitable despite the trade-in program having direct control over the supply and demand of used products. Furthermore, interestingly, both models can be better for the environment depending on the product's environmental characteristics. However, we also find that when customers are extremely forward-looking, interestingly, the trade-in model always has a lower environmental footprint than the P2P model. Based on our analysis, we further create a matrix of product attributes and identify when each resale business model is better for profitability and environment concurrently, and also when there is misalignment in the same regard. We also study the impact of product durability on pricing for both trade-in and P2P models. In addition, we present several other results and managerial insights that would provide useful guidelines not only for apparel firms, but also for non-governmental organizations and environmental advocacy groups.

Keywords: Trade-In With Resales, P2P Marketplace, Environmental Impact, Forward-Looking Behavior