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

Forthcoming in Production and Operations Management

70 Pages Posted: 16 Jun 2020 Last revised: 27 Aug 2021

See all articles by Aditya Vedantam

Aditya Vedantam

State University of New York at Buffalo - Operations Management and Strategy

Emre M Demirezen

University of Florida - Information Systems and Operations Management

Subodha Kumar

Temple University - Fox School of Business

Date Written: August 26, 2021

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

Suggested Citation

Vedantam, Aditya and Demirezen, Emre M and Kumar, Subodha, Trade-In or Sell in My P2P Marketplace: A Game Theoretic Analysis of Profit and Environmental Impact (August 26, 2021). Forthcoming in Production and Operations Management, Available at SSRN: https://ssrn.com/abstract=3607151

Aditya Vedantam (Contact Author)

State University of New York at Buffalo - Operations Management and Strategy ( email )

326G, Jacobs Management Center
Buffalo, NY 14222
United States

Emre M Demirezen

University of Florida - Information Systems and Operations Management ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Subodha Kumar

Temple University - Fox School of Business ( email )

Philadelphia, PA 19122-____
United States

HOME PAGE: http://sites.temple.edu/subodha/

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