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Abstract Considering consumers’ forward-looking behavior, this paper studies the interaction between product rollover strategy and pricing scheme when an innovative firm offers the trade-in program. Based on the rational expectation of strategic consumers, a two-period dynamic model is developed and the subgame perfect Nash equilibrium between the firm and consumers is solved. Results show that for both rollover strategies, the firm is better off following price skimming when the product salvage value is low. Second, the firm’s optimal rollover strategy depends on the product innovation incremental value, the product salvage value, and how strategic consumers are. Third, when the firm follows price skimming, dual rollover degenerates to single rollover. When the firm follows penetration pricing, single rollover strategy is more profitable when consumers are strategic enough, the product salvage value is high, and the product innovation incremental value is low. In addition, without the constraint of the same pricing scheme, single rollover is more profitable than dual rollover in most cases.
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Received: 05 October 2017
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