As environmental regulations are becoming increasingly strict, firms are setting up remanufacturing systems and using trade-in programmes that take back used products to stimulate demand. Meanwhile, they are starting to sell remanufactured products to secondary markets to avoid the problem of cannibalization. In this study, we establish a two-period model in which a monopolistic original equipment manufacturer (OEM) offers a trade-in programme to improve sales and collect used products. At the same time, the OEM can elect to remanufacture these used products and resell them to a secondary market. The results for the static pricing case show that the two primary driving factors, customers’ maximum willingness to pay into the secondary market and production cost, produce different outcomes. Depending on the relationship between these two key factors, seven outcomes exist. Specifically, although all used products are collected and the secondary market is available, the OEM may not remanufacture or may partially remanufacture. We study the above problem using a dynamic pricing case in which the product price during the second period is different from that in the first period. We find that the OEM prefers to offer a menu such that all rather than just some holders participate in the trade-in programme. Furthermore, in the dynamic pricing case, all rather than some of these used products are remanufactured, in contrast with the static pricing case. However, 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 include a competitive situation and find that the results for the core model can essentially be reproduced under competition.

Introduction

Generally, a consumer can obtain a price discount when buying a new product and returning his/her used product through a trade-in programme. A successful trade-in programme is currently regarded as an important way to increase customer demand and recapture used products (Xiao, 2017; Yin, Li, & Tang, 2015). According to a report by the International Data Corporation, global shipments of smartphones reached 1.47 billion units in 2016, a considerable number of which were for replacement. The high demand for replacements (and the subsequent high number of shipments) is due to the product’s short lifecycle and frequent technology upgrades. Meanwhile, an increasing number of enterprises have begun to vigorously implement trade-in services. For example, Apple has a reuse and recycling programme in China that encourages regular Chinese consumers to purchase again. Apple’s competitors, such as Huawei, Xiaomi, and Samsung, also offer trade-in rebates to customers willing to return their used products. China’s automotive industry has implemented a similar trade-in programme. In 2016, ten governmental departments, including the Ministries of Finance and Commerce, issued measures to oversee auto replacement policies. These expanded the scope of subsidiary objects and increased the number of subsidies compared with 2009. They also aimed to accelerate the upgrading of older cars and boost domestic demand. Nowadays, trade-in programmes are a popular approach to expanding product sales and stimulating market demand (Desai, Purohit, & Zhou, 2016; Yin & Tang, 2014).