Research On The Firms' Pricing And Quality Choice When Considering Trade-in Programs

The pricing strategy has always been regarded as an effective way to stimulate consumption and adjust market demand.As the industry competition intensifies,however,a unique pricing strategy becomes increasingly difficult to adapt to the rapidly changeable market.The strategy which relies upon the development and design of products consequently appears.In this way,firms can meet the market demand and reduce the production cost by designing and producing products that satisfy consumers.The rapid development of technology has led to the shortening of product upgrade cycle and the increasingly saturated market demand.As a result,the simple combination of product quality design and pricing strategy becomes unable to meet the market requirements.Therefore,more and more firms start to carry out trade-in programs to improve consumers' purchase frequency.According to some relevant surveys,many firms,like Apple,Dell,Taobao.com,and JD.com,are offering trade-in rebates to their regular consumers.In particular,in the smartphone industry,companies such as Samsung,Huawei and Xiaomi are offering trade-in services through their retail and direct channels.On the one hand,firms can stimulate the sales of new products by sacrificing a certain amount of discount.On the other hand,they can attract consumers to actively participate in the reverse logistics management,increase the collection of old products and improve their social image.Based on the realistic background above,this dissertation,by analyzing consumers' purchase behavior through literature research,game theory,optimization theory as well as numerical simulation,studies the firms' production and operation optimization problems under the environment where various marketing strategies are integrated.The specific research problems include: study on the optimal decisions of trade-ins,pricing and quality choice when the firm adopts the static pricing strategy,research on the optimal strategies of pricing,quality choice with trade-in program when the firm adopts the dynamic pricing strategy,study on the optimal policies of trade-ins,pricing,and market entry decision in the presence of secondary market,and research on the optimal pricing,quality choice and trade-in program with remanufacturing.First of all,this dissertation studies the interaction mechanism among the trade-in program,pricing strategy,and product quality choice.By considering a two-period problem involving in the above three strategies,the optimal decisions of trade-ins,pricing,and quality choice are given.We highlight the critical role played by the level of product durability as it significantly affects the optimal strategy.To be specific,regardless of the pricing strategy adopted,we find that implementing a trade-in program can help increase product quality when product durability is low.However,it may decrease product quality when product durability is moderate.For the effect of dynamic pricing strategy on product quality,we show that the trade-in program is critical,as its presence or absence has an opposite effect.In particular,in the absence of a trade-in program,a pure dynamic pricing strategy helps increase product quality if product durability is low,but decreases product quality if product durability is moderate.However,in the presence of a trade-in program,a pure dynamic pricing strategy may decrease product quality when product durability is low,but increase product quality when product durability is moderate.Moreover,when the trade-in program and dynamic pricing strategy coexist,they can collectively help improve product quality when product durability is low,but decrease product quality when product durability is moderate.However,the effects of the trade-in program and dynamic pricing strategy on product quality can be substitutive if product durability is very low and complementary if product durability is moderate.As a result,we argue that trade-in programs should never be ignored and cannot always be replaced by pricing measures.Secondly,we further establish a two-period model in which a monopolistic original equipment manufacturer(OEM)sells new products in the first period and implements a trade-in program in the second period.Meanwhile,the used products collected through the trade-in program can be remanufactured and resold to the secondary market.Results show that the two primary driving factors,customers' maximal willingness to pay in the secondary market and production cost,produce different outcomes.Depending on the relationship between these two key factors,seven outcomes appear.In particular,the OEM can strategically offer menus so that all(partial or no)holders(i.e.,customers who purchase new products in the first period)participate in trade-in program,and then may remanufacture and sell all(part or none)of the used products collected from holders through the trade-in program to the secondary market.In addition,we consider the above problems under the dynamic pricing case where the product price in the second period is different from that in the first period.Results show that the OEM prefers to offer a menu so that all rather than partial holders participate in trade-in program,but also remanufacture all rather than part of these used products in the dynamic pricing case compared to the static pricing case.The layout of the OEM's trade-in and remanufacturing policies under the static pricing case is similar to that under the dynamic pricing case.We further extend our study to a competitive situation and find that the results in the core model can be essentially reproduced under a competitive environment.Finally,we explore how the coexistence of the secondary market and trade-in program affects firms' decisions on quality choice,prices,and trade-in rebate.To this end,we propose a stylized model that captures the features of the secondary market and trade-in program.Further,we consider three models,namely no trade-in program and secondary market(i.e.,benchmark case),trade-in program without secondary market and trade-in program with the secondary market.We obtain the optimal outcomes under each case through the optimization theory.By comparing to the benchmark case,we find that the firm prefers to reduce product quality level and selling price when the trade-in program exists solely.However,if the trade-in program exists together with the secondary market,the firm prefers to increase product quality when the maximal customers' willingness to pay in the secondary market is high.Otherwise,the firm prefers to lower product quality.