The Impact Of Secondary Market On The Company Strategies On Durable Goods Supply Chain

Durable goods are the products which can be repeated used, or can provide servicemore than one period. Common durable goods are automobile, home appliance,textbooks, machinery and equipment, office equipment, medical equipment and so on.An important characteristic of durable goods is that, after be purchased, used, andenjoyed, they still have useful value, and are able to re-enter circulation field. Therefore,it results in a secondary market. On the one hand, because durable goods usually can beused for multiple periods, it promotes the secondary markets increasing quickly whiledurable goods manufacturers continuously introduce new products, and appears twomarkets in durable goods: new and used product markets, simultaneously. On the otherhand, because the old product has the resale value, it facilitates some consumers whoare going to buy new products turn to the secondary market, and further cannibalizes thesales of new components. Thereby, new and used product markets are closely related,while influenced with each other.The existing literature on secondary markets for durable goods typically assumesthat used goods are sold outside the standard channel, or do not produce direct profitsfor the partners in the supply chain, studies the effect of the secondary markets on thestrategies of members in supply chain. However, they igores the impact of thesecondary market, as one member of supply chain, on the strategies of firms in supplychain, for instance, P2P secondary market. In real life, because the old product has somecertain residual value, it facilitates some independent third party companies, retailersand even some new product manufacturers engaging in the used products tradingactivity for a profit in markets, for example, retailers’ secondary markets. Therefore, onthe basis of this background, this article mainly focuses on the effect of the secondarymarket on the strategies of firms in supply chain.Based on the review of current researches of the secondary market in durablegoods and strategic consumers’ buying behavior and product upgrade detailedly, thisthesis studies the effect of the secondary market on the strategies of firms in supplychain by using game theory and optimization theory, from two perspectives of perfectand cooperation competition between new and used product markets.Chapter3assumes that the secondary market is a part of the supply chain, andintegrates the old product surplus value and new product upgrade and durability of durable goods into the strategies of the consumers’ buying behavior to further marketsegmentation, and derive the consumer demand function. Based on the assumptions ofthe monopoly manufacturer does not engage in the old product sales （i.e., themonopoly manufacturer and the entrant in the secondary market are direct perfectcompetition）, and consumers can not directly sell used products to each other, wedevelop a two-period model in which a monopolistic manufacturer launches a higherquality product in the second period for the technological innovation and sells its newdurable products directly to end consumers in both periods, while an entrant operates areverse channel selling used products in the secondary market. We address how thesecondary market affects the strategy of the manufacturer’s new product introduction byusing the optimization method and game theory, and find that the secondary market canactually drives the new product introduction in the second period.Inspired by firms’ frequent introduction of upgraded products and the secondarymarket increasing quickly, from the perspectives of the entrant, this study exploreswhether the entrant engaging in the secondary market is beneficial. Based on the modelassumptions in Chapter3, the model in this chapter4assumes that the manufacturerwhether releases a new upgrade product in the second period and the entrant whetherengages in the secondary market are not certain, and examines the impact ofmanufacturers’ frequent upgrading of new products in the durable goods market on thedecision of the entrant in a secondary market. To do so, we develop a two-period model,and derive the optimal price and profit of every partner in the supply chain by using theoptimization method and game theory. We find that when the investment cost ofupgrading new product is low, the manufacturer prefers to release an upgraded productin the second period; otherwise, when the investment cost of upgrading new product ishigh, the manufacturer prefers to sell the same version new products in both periods.Specially, in industries in which upgrades are typically minor or moderate, manufacturerupgrading of new products can increase the entrant’s profitability in the secondarymarket but that it does not benefit the entrant in industries in which upgrades aretypically major.Extending the perfect competion model to the cooperative competition model, andtaking the example of the textbooks market in universities, Chapter5investigates theeffect of the secondary market on the strategies of the supply chain members, based on atwo-period supply chain model consisting of a monopolistic manufacturer and a retailer,in which the secondary market operated by the retailer. We find that when the recovery cost of used products is lower, the secondary market operated by the retailer isbeneficial for both the manufacturer and the retailer; in contrast, when the recovery costof used products is higher, it is not beneficial for the manufacturer, but benefits theretailer. In other words, the retailer can block the manufacturer’s monopoly position byoperating a secondary market.