Optimal pricing decisions under the coexistence of ‘‘trade old for new” and ‘‘trade old for remanufactured” programs Zu-Jun Ma a,⇑ , Qin Zhou a , Ying Dai a,⇑ , Jiuh-Biing Sheu b a School of Economics and Management, Southwest Jiaotong University, Chengdu 610031, PR China b Department of Business Administration, National Taiwan University, No. 1, Sec. 4, Roosevelt Road, Taipei 10617, Taiwan, ROC article info Article history: Received 1 May 2017 Received in revised form 1 August 2017 Accepted 26 August 2017 Keywords: Pricing decision Trade-in Trade old for new Trade old for remanufactured Budget constraints Subsidy abstract Under the coexistence of ‘‘trade old for new” (TON) and ‘‘trade old for remanufactured” (TOR) programs, we study a firm’s optimal pricing decisions and identify the thresholds that determine whether the firm should offer TON and TOR simultaneously. The result shows that adopting two kinds of trade-ins simultaneously does not necessarily benefit the firm and that the firm should use different trade-in schemes under different conditions. Moreover, we extend the model to the case with budget constraints on the TOR subsidy. The result shows that the firm’s profit decreases when the actual TOR quantity exceeds the upper limit. Ó 2017 Elsevier Ltd. All rights reserved. 1. Introduction In practice, we find a variety of firms that offer ‘‘trade old for new” (TON) programs to consumers who currently own an old product, which means that such a consumer can purchase a new product with a discount by trading-in his old product. For instance, AT&T offered $100 credit for purchasing a new Samsung Galaxy S4 when consumers returned their old Galaxy S3 (Droidlife Website, 2013). In China, the TON program known to the public was first driven by the government subsidy plan for automobile and home appliances that began in 2009 and ended in 2011 and thus became a common industry prac- tice. In the automotive sector, FAW-Volkswagen Automobile Co. Ltd. provides consumers who currently own an old car with replacement service on its official website and in its automobile 4S shop (FAW-Volkswagen, 2013). TON has been a widely used promotion tool for selling and plays a vital role in the collection of used products as well. As the TON program prevails in practice, many scholars prove that any return flow of old products led by trade-in pro- grams has the potential to generate incomes through remanufacturing operations (Ray et al., 2005; Rao, 2009; Zhu et al., 2016). Remanufacturing is a process in which old products are disassembled, and their parts are repaired and reused in the production of new or remanufactured products (Ferrer and Swaminathan, 2006). The successful examples from industry, such as Kodak (Geyer et al., 2007), BMW, IBM, DEC and Xerox (Ayres et al., 1997), show that remanufacturing is profitable and environmentally friendly. However, many sales managers are reluctant to introduce remanufactured products because consumers may not accept remanufactured products. In fact, the willingness-to-pay for remanufactured products of most consumers is lower than that for new products (Guide and Li, 2010). Therefore, how to increase the sales of remanufactured products has become a large problem for the remanufacturing industry. http://dx.doi.org/10.1016/j.tre.2017.08.012 1366-5545/Ó 2017 Elsevier Ltd. All rights reserved. ⇑ Corresponding authors. E-mail addresses: zjma@swjtu.edu.cn (Z.-J. Ma), 1028331702@qq.com (Q. Zhou), ydai@swjtu.edu.cn (Y. Dai), jbsheu@ntu.edu.tw (J.-B. Sheu). Transportation Research Part E 106 (2017) 337–352 Contents lists available at ScienceDirect Transportation Research Part E journal homepage: www.elsevier.com/locate/tre