A Rationale for Trade-ins

Details

Serval ID
serval:BIB_95D3F1883566
Type
Article: article from journal or magazin.
Collection
Publications
Title
A Rationale for Trade-ins
Journal
Journal of Economics and Business
Author(s)
van Ackere A., Reyniers D.
ISSN
0148-6195
Publication state
Published
Issued date
02/1993
Peer-reviewed
Oui
Volume
45
Number
1
Pages
1-16
Language
english
Abstract
We explain trade-ins as a device used by a monopolist to price discriminate between new and repeat buyers. We show how the monopolist creates and subsequently exploits market segmentation. A two-period model is considered. In the first period, the seller sets a price which divides the second-period market into old and new customers. In the second period, he uses trade-ins (discounts for old customers) or introductory offers (discounts for new customers) to price discriminate between buyers. We analyze the optimal segmentation of customers; i.e., we determine the optimal price for each consumer group as a function of the durability of the good, its production cost, and the discount factor. The qualitative decision of whether to give a discount to old or new customers also depends on these parameters. We consider a second model in which discounts are only available to repeat buyers, and compare our results to a base model without price discrimination.
Create date
02/06/2009 14:44
Last modification date
20/08/2019 14:58
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