When Trade-in Refurbishment Meets P2P Market: Product Design and Environmental Regulation
43 Pages Posted: 12 Mar 2024 Last revised: 13 May 2024
Date Written: February 14, 2024
Abstract
Consumers have the option to trade in used products for credit toward new purchases, and firms refurbish these used products for resale. Alternatively, used products can be transacted in peer-to-peer (P2P) markets. This study investigates the interplay between firms' trade-in and refurbishment activities and third-party P2P resale markets. Despite potential competition, we show that P2P markets generally boost a firm's profits by facilitating faster product turnover. However, this profit-related synergy is accompanied by a nonmonotonic environmental impact: P2P markets positively impact the environment when they are mildly efficient and coexist with the firm's trade-in and refurbishment program. However, in turn, an extremely efficient and monopolist P2P market backfires in the environment. Furthermore, we delve into the firm's product design decisions, especially regarding the quality gap between new and older products. The profit-maximizing quality upgrade is always extreme---at either maximal (aggressive upgrade) or minimal (conservative upgrade) bounds on the feasible range---and this choice is determined by the value of the maximum upgrade. An aggressive upgrade could benefit profits and the environment simultaneously if it is truly "aggressive enough." Additionally, we evaluate the effectiveness of environmental regulations, including subsidies for refurbishment and promoting the P2P market. Our analysis suggests that a joint investment in both the refurbishment and P2P markets could be suboptimal. Specifically, in situations with sufficient budgets, prioritizing refurbishment subsidies emerges as the optimal policy. In contrast, when the budget is severely constrained, exclusive investments in P2P market promotion is found to be optimal.
Keywords: trade-in, P2P resale market, quality choice, environmental regulations, circular economy
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