Optimal Trade-In and Repair Strategies for Durable Products

Firms in durable goods markets must navigate a critical tension between stimulating replacement purchases through trade-in programs and satisfying longevity demand via repair services. In this paper, we develop a two-period model to characterize the optimal joint and separate design of trade-in and repair policies for a monopolist. Analysis of the equilibrium outcomes shows that, in a trade-in-only setting, the firm can induce either full or partial replacement by calibrating selling and recycling prices according to product durability and recycling cost. In a repair-only setting, the optimal service coverage depends on the relative durability of repaired products compared to original units and the associated repair cost. When both services are offered concurrently, the optimal strategy hinges on the interplay among recycling cost, repair cost, and the residual value of the old product. Notably, we identify conditions under which these services act as strategic substitutes versus complementary revenue streams. Finally, we extend the baseline model to validate the robustness of our core findings by comparing dual and single services, incorporating strategic consumer behavior, and analyzing differential pricing schemes.