Journal of Applied Mathematics

The Strategy of New Product Introduction in Durable Goods with Secondary Market: Application of the Optimization Method to Supply Chain Problem

Pei Zhao and Zhongkai Xiong

Full-text: Access denied (no subscription detected)

We're sorry, but we are unable to provide you with the full text of this article because we are not able to identify you as a subscriber. If you have a personal subscription to this journal, then please login. If you are already logged in, then you may need to update your profile to register your subscription. Read more about accessing full-text


The aim of this paper is to address how the secondary market affects the strategy of the manufacturer’s new product introduction by using the optimization method. To do so, we develop a two-period model in which a monopolistic manufacturer sells its new durable products directly to end consumers in both periods, while an entrant operates a reverse channel selling used products in the secondary market. We assume that the manufacturer launches a higher quality product in the second period for the technological innovation. We find that the secondary market can actually increase the manufacturer’s profitability and drives the new product introduction in the second period. We also derive the effect of the durability and the degree of quality improvement on the pricing of supply chain partners.

Article information

J. Appl. Math., Volume 2014 (2014), Article ID 543092, 10 pages.

First available in Project Euclid: 2 March 2015

Permanent link to this document

Digital Object Identifier

Mathematical Reviews number (MathSciNet)

Zentralblatt MATH identifier


Zhao, Pei; Xiong, Zhongkai. The Strategy of New Product Introduction in Durable Goods with Secondary Market: Application of the Optimization Method to Supply Chain Problem. J. Appl. Math. 2014 (2014), Article ID 543092, 10 pages. doi:10.1155/2014/543092.

Export citation


  • Consumer Business Review, “Big Players Emerge in Fragmented Brokerage Market.,” 2005,
  • J. Marion, “Sun under fire-For fixing Solaris OS costs to reduce competition in used Sun market,” Association of Service and Computer Dealers International (ASCDI), 2004,
  • E. Dourado, 2010,
  • J. Riley and W. F. Samuelson, “Optimal auctions,” The American Economic Review, vol. 71, no. 3, pp. 381–392, 1981.
  • P. Milgrom and R. J. Weber, “A theory of auctions and competitive bidding,” Econometrica, vol. 50, no. 5, pp. 1089–1122, 1982.
  • S. P. Anderson and V. A. Ginsburgh, “Price discrimination via second-hand markets,” European Economic Review, vol. 38, no. 1, pp. 23–44, 1994.
  • A. Dhebar, “Durable-goods monopolists, rational consumers and improving products,” Marketing Science, vol. 13, no. 1, pp. 100–120, 1994.
  • P. Desai and D. Purohit, “Leasing and selling: optimal marketing strategies for a durable goods firm,” Management Science, vol. 44, no. 11, pp. S19–S34, 1998.
  • P. S. Desai and D. Purohit, “Competition in durable goods mar-kets: the strategic consequences of leasing and selling,” Marketing Science, vol. 18, no. 1, pp. 42–58, 1999.
  • S. Huang, Y. Yang, and K. Anderson, “A theory of finitely durable goods monopoly with used-goods market and transaction cost,” Management Science, vol. 47, no. 11, pp. 1515–1532, 2001.
  • Y. Xiong, W. Yan, K. Fernandes, Z.-K. Xiong, and N. Guo, “Bricks versus clicks: the impact of manufacturer encroachment with a dealer leasing and selling of durable goods,” European Journal of Operational Research, vol. 217, no. 1, pp. 75–83, 2012.
  • D. A. Levinthal and D. Purohit, “Durable goods and product obsolescence,” Marketing Science, vol. 8, no. 1, pp. 35–56, 1989.
  • D. Fudenberg and J. Tirole, “Upgrades, tradeins, and buybacks,” RAND Journal of Economics, vol. 29, no. 2, pp. 235–258, 1998.
  • W. S. Lim and C. S. Tang, “Optimal product rollover strategies,” European Journal of Operational Research, vol. 174, no. 2, pp. 905–922, 2006.
  • A. Dhebar, “Durable goods monopolists, rational consumers, and improving products,” Marketing Science, vol. 13, no. 1, pp. 100–120, 1994.
  • L. J. Kornish, “Pricing fora durable-goods monopolist under rapid sequential innovation,” Management Science, vol. 47, no. 11, pp. 1552–1561, 2001.
  • J. J. Anton and G. Biglaiser, “Quality, upgrades and equilibrium in a dynamic monopoly market,” Working Paper, Duke University, 2011.
  • P. S. Desai, O. Koenigsberg, and D. Purohit, “Strategic decentralization and channel coordination,” Quantitative Marketing and Economic, vol. 2, no. 1, pp. 5–22, 2004.
  • S. R. Bhaskaran and S. M. Gilbert, “Selling and leasing strategies for durable goods with complementary products,” Management Science, vol. 51, no. 8, pp. 1278–1290, 2005.
  • C. Friscia, Retail Business Operations, New Providence, New Jersey, NJ, USA, 2009.
  • S. Yin, S. Ray, H. Gurnani, and A. Animesh, “Durable products with multiple used goods markets: product upgrade and retail pricing implications,” Marketing Science, vol. 29, no. 3, pp. 540–560, 2010.
  • N. Oraiopoulos, M. E. Ferguson, and L. B. Toktay, “Relicensing as a secondary market strategy,” Management Science, vol. 58, no. 2, pp. 1022–1037, 2012. \endinput