The manufacturer’s resale strategy for trade-ins

Abstract

To cope with the ever-increasing number of used cars, many automobile manufacturers now offer trade-in programs whereby they resell used cars to generate revenue. Consumers have the alternative of selling their used cars via an online peer-to-peer (P2P) resale platform, which charges a commission on each transaction. This paper studies a manufacturer’s traded-in resale strategy and assess how the manufacturer’s resale strategy and profits are affected by the presence of online P2P platforms. We find that in the absence of P2P platforms, the manufacturer may opt against implementing a resale program, whereas it will always do so in the presence of P2P platforms. This suggests a notable shift in manufacturers’ optimal choice of trade-in resale strategies due to the emergence of P2P platforms. Furthermore, the study reveals that the introduction of P2P platforms may diminishes the profits of manufacturers who have implemented a resale program. Importantly, the study underscores that manufacturers are not necessarily obliged to adopt a planned obsolescence strategy. When P2P platforms are absent, implementing a resale program allows manufacturers to increase profits by producing products that are either less or more durable. However, in the face of competition from P2P platforms, profitability can only be enhanced by making products more durable. This suggests that a platform’s emergence can alter how the depreciation rate affects a manufacturer’s profit and hence its optimal product design strategies. Understanding these dynamics is crucial for effectively navigating the growing used car market.