Whether to Implement Privacy Protection in Trade-Ins Under Competition

Growing consumer privacy concerns have led firms like HP to introduce trade-in services with privacy protection, while others like ASUS continue to provide trade-in services without such protection. This study focuses on two competitive firms to explore whether they should provide a trade-in service with privacy protection. We categorize replacement consumers into two groups based on their privacy concerns. The first group comprises consumers who have higher privacy concerns and are unwilling to trade in their old products without any privacy protection. The second group comprises consumers who have lower privacy concerns. We find that equilibrium outcomes are influenced by the proportion and behavior of consumers with high privacy concerns, the level of competition, the unit cost of privacy protection, and product durability. Additionally, we observe a prisoner's dilemma where both firms opt to offer a trade-in service without privacy protection under certain conditions, and note that firms may adopt different trade-in strategies to mitigate the cannibalization effect of intensive competition. Interestingly, compared to competitive provision, the exclusive provision of privacy protection services can enhance consumer surplus in a less competitive market, whereas compared to no provision, the exclusive provision of privacy protection can reduce consumer surplus in a highly competitive market. These findings can guide firms in making informed trade-in decisions regarding privacy concerns.