Trade-in programs in the context of technological innovation with herding

Paolo Pellizzari (Dept. of Economics, Universita Ca' Foscari Venice), Elena Sartori (Dept. of economics, Universita Ca' Foscari Venice), and Marco Tolotti (Dept. of Management, Universita Ca' Foscari Venice) discuss Trade-in programs in the context of technological innovation with herding.

ABSTRACT: We study optimal pricing strategies and consequent market shares dynamics in a transition from an old and established technology to a new one. We simulate an agentbased model, in which a large population of possible buyers decide whether to adopt or not depending on prices, private signals and herding behavior. The firm, on its part, sets prices to maximize revenues. We show that trade-in programs, in practice comparable to very aggressive discounts, are supported by a rational attitude.