Optimal Trade‐in Return Policies: Is it Wise to be Generous?^†

To retain old customers and promote sales, firms offer trade‐in programs in which consumers bring in an old product and receive a trade‐in rebate when buying a new one. However, after buying the new product, the consumer who has traded in (the “trade‐in consumer”) may return the new product and claim a refund for it if she/he is not satisfied with it. In this situation, under a full‐trade‐in‐return (FTR) policy, trade‐in consumers receive a...