The Interplay of Financing and Trade-In Implementation Under Agency Selling

A capital-constrained manufacturer sells a durable product to replacement consumers (consumers with a used product) and primary consumers (consumers without one) through a retail platform under agency selling, financing production from either the platform or a bank, with the trade-in program implemented by either the manufacturer or the platform. Four supply chain models are formulated and solved. Comparing the equilibrium decisions and demands, the rankings across the two financing channels are generally cost-dependent, whereas several comparisons across the two trade-in implementers are stable or structurally pinned down. Introducing financing reshapes the trade-in preferences of the manufacturer and the platform relative to agency selling without financing. In the reported numerical comparisons, the manufacturer largely prefers platform financing, and the bank always prefers platform implementation; consumers prefer platform financing when the manufacturer implements the trade-in and manufacturer implementation under platform financing. Three extensions respectively confirm the effects of financing, examine how the government should set the trade-in subsidy, and assess the robustness of the key findings when the manufacturer has positive initial capital.