Trade-in program in online platforms considering network externalities and recycling services

Abstract

Consumers trade their used products for new ones through online platforms, thereby integrating internet shopping and recycling. Two trade-in models are developed, i.e., the platform model where the manufacturer cooperates with an online retail platform to sell products and the online retail platform introduces trade-in program and manufacturer model where the manufacturer's own platform introduces trade-in program. This study examines the trade-in program offered by online platforms with a consideration of network externalities and heterogeneous consumers, and analyzes the decisions of pricing and recycling service. The research indicates that heightened network externalities can enhance recycling services, promote trade-in program development, and increase the demand for trade-in. The trade-in recycling service gets higher in the manufacturer model, whereas the sales price in the platform model is elevated due to sales commission rates. However, the manufacturer model does not always have higher market demand than the platform model, when both the commission rate and recycling revenue are high, the platform model have higher market demand. Although the manufacturer profits more than the online retail platform in the platform model, it is suggested that the manufacturer should introduce the trade-in program on the self-owned platform since the profit of manufacturer is larger under the manufacturer model.