Abstract: Nowadays, trade-in programs are really common in various industries, such as home electronic appliances, smartphone, laptop, tablet PC and other high-tech product industries. Without any doubt, it is an effective way for the firm to improve product sales and profis by providing trade-in subsidy to consumers who have already owned the old generation of product. The extant literature on operations management have explored the impact of offering trade-in option from different perspectives including the firm's pricing, inventory, new product introduction decisions, and also the profit performance of the firm and the supply chain. Nevertheless, most studies focus on the context of monopolistic firm. Hence, little is known with regard to the firm's optimal trade-in strategy when facing competitor, or more accurately, new entering competitor. In other word, whether the firm's trade-in decision will be affected by the existence of competitor? Under this circumstance, in order to address the above problem, a theoretical model is constructed in this paper, deriving out the trade-in and pricing equilibrium under the competition of two firms who sequentially enter the market filled by consumers with heterogeneous willingness to pay. Based on this model, we, to begin with, solve the subgame considering potential competition in the cases of both firms offering trade-in, either firm offering trade-in, and no firm offering trade-in, and then investigate the competitive trade-in equilibrium. Finally, how the presence of competition may influence the firm's optimal trade-in strategy, pricing decisions, and corresponding consumer segmentation is analyzed. The research results show that, firstly, the pricing decisions under competition are influenced by the proportion of old consumers in the market, the new product innovation level of these two firms, and the salvage value of old product. Secondly, when the old product salvage value is relatively low and the proportion of old consumers in the market is moderate, both firms may choose not to provide the trade-in program in equilibrium, while both firms will choose to provide the trade-in program under other conditions. Thirdly, the first entering firm has no incentive to provide trade-in subsidy alone. Fourthly, the existence of competitor has significant impact on both thepricing and trade-in decisions for the first entering firm. This paper provides not only a theoretical fundament to the following research, but also managerial insights to the trade-in business in recent years.

Key words: trade-in program, duopoly competition, pricing, market heterogeneity