Exploring the Effect of a Trade-In on Consumers' Willingness to Pay For a New Product

Rui (Juliet) Zhu, University of British Columbia, Canada
Xinlei (Jack) Chen, University of British Columbia, Canada
Srabana Dasgupta, University of British Columbia, Canada
Consumers commonly trade in their used product when upgrading to a new product. We examine whether the presence of a trade-in affects consumers’ willingness-to-pay (WTP) for the new good. Based on research on the endowment effect and mental accounting, we reason that trade-in consumers place more importance on getting a good value for the used product than a good price for the new product. Consequently, they exhibit a higher WTP for the new product compared to consumers who just buy the new product alone. We find strong support for our hypothesis through lab experiments and real world automobile transaction data.
[ to cite ]:
Rui (Juliet) Zhu, Xinlei (Jack) Chen, and Srabana Dasgupta (2008) ,"Exploring the Effect of a Trade-In on Consumers' Willingness to Pay For a New Product", in NA - Advances in Consumer Research Volume 35, eds. Angela Y. Lee and Dilip Soman, Duluth, MN : Association for Consumer Research, Pages: 157-161.