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Used goods, not used bads: Profitable secondary market sales for a durable goods channel

Since pay per click scams depend on technology, brands can use technology-based strategies to fight them. Highly effective automated solutions can detect search ad abuse, prioritize for the worst offenders and then automatically take action. Initiating and driving these strategies should be a top priority for marketing organizations that wish to maximize returns from their paid search investments. Most marketing teams work with their legal department to develop policies, report templates and procedures. However, once templates and automated processes are in place, marketing teams can act independently and generate virtually immediate results: PPC scams targeting the brand will begin to diminish. | Quant Market Econ 2007 5 191-210 DOI 10.1007 s11129-006-9017-x Used goods not used bads Profitable secondary market sales for a durable goods channel Jeffrey D. Shulman Anne T. Coughlan Received 9 June 2005 Accepted 21 December 2006 Published online 5 June 2007 Springer Science Business Media LLC 2007 Abstract The existing literature on channel coordination typically models markets where used goods are not sold or are sold outside the standard channel. However retailers routinely sell used goods for a profit in markets like textbooks. Further such markets are characterized by a renewable consumer population over time rather than the static consumer population often assumed in prior literature. We show that accounting for these market characteristics alters the optimal contract form as compared to the contracts derived in prior research. In particular when new goods are sold in both the first and second periods of our model the optimal contract differs from those in prior literature in that it can exhibit a negative fixed fee in the second period and requires contracting over the resale price in the second period. The model shows that the manufacturer makes higher profits from allowing used-good sales alongside new-good sales than from shutting down the retailer-profitable secondary market and that unit sales expand with a profitable secondary market over those achievable without a secondary market. Furthermore in contrast to previous investigations of durable goods markets that ignore the possibility of a retailer-profitable secondary market we show conditions under which the manufacturer would optimally choose to sell no new goods in the second period ceding the market entirely to the used-goods retailer. This research thus expands our knowledge of how durable goods markets work by incorporating the profitable operation of a retailer-run resale market. Keywords Channels of distribution . Game theory . Durable goods . Used-goods markets . Channel coordination .