Two-period equilibrium model and pricing strategy with trade-in for duopoly

Abstract:

Trade-in is a popular marketing method in the current age, making enterprises face new challenges in market competition. This study sets up a two-period duopoly model with differentiated manufacturers considering trade-in offers. The manufacturers determine their trade-in prices and maximize their profits. The equilibrium and corresponding results are then analyzed. The results show that: (1) When the products are significantly differentiated and the depreciation coefficient is moderate, the model has a unique equilibrium and market segmentation. (2) The high-quality manufacturer benefits from his own product quality standards, and his competitiveness of not participating in the trade-in market is stronger when the depreciation coefficient is large. (3) Consumers will pay more attention to the manufacturers’ product quality market positioning, because it’s important for consumers to decide whether to participate in trade-in during the second period. Therefore, enterprises should consider external factors in advance before trade-in strategies.