Optimal prices and trade-in rebates for successive-generation products with strategic consumers and limited trade-in duration

Firms usually offer trade-in programs to entice consumers to purchase next generation products. By considering the purchase behavior of both myopic consumers and strategic consumers, we propose a game-theoretic analytical model to determine the optimal price of the next generation products and the optimal trade-in rebate. We find that firm’s optimal price of the next generation products increases with the incremental value. The optimal trade-in rebate decreases with the trade-in duration. The firm’s optimal profit increases with the trade-in duration, but decreases with the incremental value.