Journal
JOURNAL OF MARKETING RESEARCH
Volume 45, Issue 2, Pages 159-170Publisher
SAGE PUBLICATIONS INC
DOI: 10.1509/jmkr.45.2.159
Keywords
trade-ins; mental accounting; automobile market
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When consumers decide to upgrade to a new or better product, they often trade in their currently owned or used product for the new one. The authors examine whether such trade-in behavior, in which consumers must negotiate the price for both the new and the used product, affects their willingness-to-pay price for the new good. Drawing on research on mental accounting, the authors reason that when-consumers engage in a transaction involving a trade-in (i.e., when they act as both buyer and seller simultaneously), they place more importance on getting a good value for the used product than on getting a good price for the new product. As a result, such consumers exhibit a higher willingness-to-pay price for the new product than consumers who just buy the new product alone. The results from a series of laboratory experiments provide systematic support for this hypothesis. Finally, the authors lend external validity to their results by confirming the hypothesis using real-world transaction data from the automobile market.
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