Optimal Pricing Strategy of New Products and Remanufactured Products Considering Consumers’ Switching Purchase Behavior

Abstract

Due to income constraints, increased awareness of environmental protection and preference for new products, consumers generate switching purchases between new and remanufactured products, which often lead to a “cannibalization effect” in the market, and make sellers fall into a vicious circle of price reduction. Considering consumers’ switching purchase behavior, this study examines the pricing problem of new products and remanufactured products in the competitive market environment. Based on two-period duopoly asymmetric price game models, there has been less research on the effectiveness of the price matching strategy and the traditional dynamic pricing strategy, which is the issue that this paper is dedicated to discussing. This study analyzes the equilibrium profits and their influencing factors under the dynamic pricing and price matching strategies of sellers, and discusses the simplified solution of the model. The results show that consumer learning costs, initial consumers and product differences can affect the sellers’ pricing decisions. Consumers’ learning costs of products reduces the equilibrium profit of the manufacturer and increases that of the remanufacturer. Initial consumers are not always advantageous for sellers’ profitability. Product differences affect the determination of the seller’s equilibrium strategy. In the optimal strategy, the remanufacturer should insist on price matching, while the manufacturer should choose dynamic pricing or price matching according to the product differences. This study provides sellers with insights to choose appropriate and custom pricing strategies to maximize profit as well as prevent the majority of consumers switching purchase.