Trade-in strategy: the impact of strategic consumers on competitive supply chains

Advancements in data technology enable firms to collect consumer purchase history data on a broader scale. This not only facilitates the recycling of old products (trade-in programs) but also supports the implementation of behavior-based pricing (BBP) using historical data to boost sales of new products. However, this has also intensified competition among firms. This paper constructs a two-period dynamic pricing model to examine the interactive effects of BBP and cross-brand trade-in strategies under different closed-loop supply chain channel structures. The research findings reveal changes in trade-in rebate, product prices, channel member profits, consumer surplus, and social welfare. We find that, first, BBP may either intensify or alleviate competition in trade-in rebate schemes. Second, firms adopting uniform pricing (UP) should implement price increases in the second period, while those adopting BBP should adopt price decreases to counter competition. Third, UP generates greater total supply chain profits, while BBP consistently increases consumer surplus; however, BBP leads to inferior social welfare. Finally, we extended the model in six dimensions. Finally, we extended the model in six dimensions to capture more realistic competitive scenarios and test the robustness of key findings. These extensions include asymmetric channel structures, salvage values of old products, consumer switching costs, discount factors, consumer retention of old products, and market partial coverage. This work provides some theoretical insights for government agencies in developing a competition regulatory framework that balances firm profits and consumer welfare.