Within-brand or cross-brand: The trade-in option under consumer switching costs

In a highly saturated market, some firms (e.g., Apple and Samsung) extend the scope of their trade-in services from the same brand (within-brand trade-ins) to any brand (cross-brand trade-ins). Cross-brand trade-ins provide additional trade-in rebates for consumers who possess a rival's old product and need to bear the switching costs incurred by changing brands. This study focuses on two competitive firms with brand differentiation and characterizes consumers on the basis of their valuation of high-end products and switching costs. We use game theory to model four different trade-in scenarios to study whether within-brand or cross-brand trade-ins should be adopted. Endogenous switching costs and endogenous recovery advantages are also considered. We find that the trade-in strategy equilibrium depends on the potential benefits and additional costs. A firm pays more attention to cross-brand trade-ins when facing a decrease in its original market share, the recovery advantage of its rival, or the switching costs from its rival to itself. Relative to within-brand trade-ins, cross-brand trade-ins can (1) motivate a firm to further decrease switching costs from its competitor to itself and (2) blur the boundary of take-back responsibility, thereby dissuading the other firm from improving its recovery technology. These findings can help firms identify favorable trade-in strategies and provide insights into other strategic decisions related to trade-ins.