Trade-ins and Introductory Offers in a Monopoly

Abstract

We model the commonly used marketing practices of offering discounts to either repeat buyers (trade-ins) or new buyers (introductory offers) of a quasi-durable good. We analyze these practices in terms of their potential for intertemporal and third-degree price discrimination. In our two-period model, the monopolist sets a first-period price that segments the second-period market optimally into holders and nonholders of the good. In the second period, different prices are quoted to the two market segments. We present three versions of the model with varying assumptions on consumers' rationality.