The impact of government subsidy and consumer expectations for new products on trade-in programs: a stackelberg game analysis

Under the backdrop of promoting a circular economy, trade-in programs connect consumption and recycling, while being jointly driven by government trade-in subsidies and consumer expectations for new products (CEN).In both no-subsidy and subsidy scenarios, we develop a Stackelberg game model with the manufacturer as the leader and the recycler as the follower, and derive the optimal outcomes across different market regions under both scenarios. We analyze the impacts of the consumer perceived quality discount factor for refurbished products, subsidies, and CEN on optimal pricing, demand, and profits. Finally, we further analyze the effects of subsidies and CEN on consumer surplus and government utility. The results show that subsidy benefits tend to tilt toward the leader in the pricing game, and the recycler’s profit may decline under certain conditions. When TFN competition and CEN jointly strengthen the new-product channel, the recycler’s optimal strategy shifts toward focusing on trade-in for cash (TFC) rather than simultaneously offering TFC and trade-in for refurbished products (TFR). Finally, although subsidies can raise consumer surplus, government utility does not necessarily increase because subsidy spending can outweigh the welfare gains when CEN is below a threshold, implying that moderate subsidies and demand-enhancing policies are more effective. These findings provide guidance for firms’ strategy design and for governments to implement precise and differentiated subsidy policies.