Manufacturer’s Pricing and Consumer Behavior With Peer-to-Peer Marketplace and Collection Platform

Abstract

In the context of the growing secondhand economy, this article examines a supply chain involving a monopolistic manufacturer of durable products operating under three configurations: no secondhand market (Scenario N), participation in a peer-to-peer (P2P) marketplace (Scenario P2P), and collaboration with a collection platform (Scenario PL). We develop three game-theoretic models to characterize the manufacturer’s pricing decisions and consumers’ purchase and replacement behaviors across these scenarios. Our main findings are as follows. First, in Scenario P2P, the manufacturer can induce all, some, or none of the replacement consumers (i.e., consumers holding a used product) to repurchase new products, depending on the production cost of the new product, whereas in Scenario PL, the manufacturer can induce only some or none of them to do so. Second, when production costs are low, a P2P marketplace benefits the manufacturer but it becomes detrimental as production costs increase. By contrast, partnering with a collection platform weakly increases the manufacturer’s profit (i.e., it either improves profit or leaves it unchanged). Third, relative to Scenario PL, Scenario P2P yields higher consumer surplus in most cases, except when both the upgrade level of the new product and its production cost are high. Counterintuitively, when production costs are high, higher transaction costs in secondhand markets can benefit consumers. For robustness, we extend the model to allow for the manufacturer’s dynamic pricing, replacement consumers’ repurchase in Scenario N, and new-product upgrades.