Contributions of the first and second author were equal. The authors thank Kent Seltman and Lindsay Dingle from the Mayo Clinic-Rochester for their participation and support. They also thank Lan Nguyen Chaplin for help with stimuli development and data coding.

No abstract

Trade-in transactions typically involve an exchange of an old, used version for a new or newer version of the product. When consumers trade in their used model for a new model, the firm faces the choice of paying the consumer a relatively low price for the used model and charging a commensurately low price for the new model or paying a relatively high price for the used model and charging a commensurately high price for the new model. The extant literature suggests that consumers always prefer to be overpaid in trade-in transactions because they disproportionately value the gain associated with the revenues from the sale of the used version of the product. The authors draw from the prospect theory value function to develop a simple analytical model that identifies a condition under which this preference for overpayment is reversed. Their model predicts that even when faced with economically equivalent price formats, consumers prefer to be overpaid when the ratio of the price of their used product to the price of the new product is low, but when that ratio is high, the preference for overpayment is reversed. They observe support for the predictions that emerge from the model in laboratory experiments. In many purchase situations, consumers engage in transactions that involve the purchase of a new model of a product and the simultaneous sale of a previously owned version of the product. In the case of consumer durables such as automobiles, golf clubs, wristwatches, and exercise equipment; nondurables such as men's suits and athletic shoes; Keywordsand industrial products such as CT scanners, textile machinery, and executive jets, such trade-in transactions are becoming relatively commonplace. In effect, the acquisition price of the new model is reduced by an amount equal to the value of the used model.Trade-ins are ubiquitous and represent a significant economic activity. Approximately 40% of all new consumer automobile purchases involve a trade-in (Morton, Zettelmeyer, and Silva-Risso 2003). They are also becoming increasingly common in business markets for products such as supercomputers (Fudenberg and Tirole 1998). Furthermore, in developing countries, which have experienced an increase in demand for new durables, trade-ins (often referred to as "exchanges") are popular (Jain 1993) for a host of products ranging from watches to television sets. Thus, in terms of sheer magnitude, trade-ins represent tens of billions of dollars' worth of economic activity.In addition, trade-ins have attracted the attention of policy makers and consumer watchdog groups for several reasons.On the one hand, trade-in practices have raised concerns about the generation of consumer confusion. For example, in 2003, the attorney general of Illinois accused dealers of engaging in trade-in practices that were "nightmarish challenges for consumers" because of the complexity associated with the deal (Consumer Affairs 2003). Similarly, electronic car buying guides often refer to trade-ins as tools that dealers employ to "rip off" or "confuse"...

We investigate the apparent rarity of contrast effects in diverse-category contextual and target product settings. Three studies show that the direction of context effects depends on (a) whether target product positioning is abstract or concrete, (b) consumers' adoption of an item-specific, similarity-focused relational or dissimilarity-focused relational processing mind-set, and (c) the magnitude of resources allocated to processing. We find that contrast effects emerge when an ambiguous target product is positioned concretely, not abstractly, and consumers employ relational, not item-specific, processing. A framework clarifies how and when each of the aforementioned factors shapes context effects, often in ways never before seen. (c) 2007 by JOURNAL OF CONSUMER RESEARCH, Inc..

In today’s advanced economies, consumers are constantly exposed to an increasing number of upgraded products. This research examines consumer response to a brand’s launching of an upgraded product and identifies the consumer’s ownership status of a previous version of the product as a key dimension that can influence their reaction. Contrary to common intuition, it is demonstrated that while the release of an upgraded product is received positively by non-owners of a previous version, this is not always the case for owners. The authors propose that owners respond unfavorably because the new upgrade increases perceived distance between the owners and the brand as the brand progresses forward with the enhanced products. That is, when the new product replaces an existing product the consumers own, consumers perceive as if the brand is moving away from them. This negative effect of an upgrade is attenuated if the owners are provided with an extra source of connection to the brand. The authors investigate this phenomenon in five studies and discuss the implications of their findings.