Technology
What's Old Is New Again
Selling new generation models only to be left with returned merchandise from older generations can be problematic. New research explores a possible solution.
Mar 05, 2018

What's Old Is New Again

Mar 05, 2018
Technology
As Featured In 
Production and Operations Management

Giving Outdated Tech a Second Life Away from Landfills

In the technology world, what’s old is rarely new again. Indeed, technology revolves around near-constant innovation that propels society forward, which means older generation models of your favorite devices are regularly discarded in favor of their newer generation counterparts. This cycle can be problematic for tech OEMs (original equipment manufacturers), who find themselves selling new generation models only to be left with returned merchandise from older generations. Moreover, customers migrating to newer generations of products are often unsure about how to dispose of their older but functional devices.

Online liquidation auctions have emerged as a potential solution, operating as secondary marketplaces where this equipment can be bought and resold. Along with a team of co-researchers, Wedad Elmaghraby, professor of management science and operations management at the University of Maryland’s Robert H. Smith School of Business, collaborated with a large U.S.-based wholesale liquidator for IT equipment to explore the design of these liquidation auctions. They aimed to understand how the simultaneous sale of multiple generations of used iPads influences auction prices. 

“Clearly, a solution to this rapid turnover of technology lies in the creation of profitable and efficient secondary markets for IT equipment that, on the one hand, reduce the direct impact of older and usable technological assets on landfills, and on the other hand, facilitate finding new homes for this IT equipment,” the researchers explained. “Within the larger context of secondary markets for IT equipment, understanding the dynamics of demand across multiple generations and quality grades of equipment is critical in designing such B2B markets.”

What Elmaghraby and her team discovered is that a complex interplay of demand and final prices exists across iPad generations. The researchers’ study suggests that by changing the starting prices across iPads of varying generations and quality, it’s possible to strategically direct demand toward specific products and increase those auctions final prices. Most importantly, Elmaghraby and team find that the current strategy of setting starting prices low across all products is generally not always advisable, as it has a dampening effect on total revenues.

“Marketing scholars have argued that reducing the spread of prices in such differentiated markets may focus buyers' attention on quality and fit between their needs and those features offered by the products,” the researchers wrote. 

Their study resulted in a finding that supports that theory: In the used iPad auction setting, it’s possible that reducing the average price distance between the lower market's prices and those of the higher quality market make the higher quality product more attractive by providing higher quality per dollar value.

“Our experiments indicate that, by manipulating starting prices, the B2B auctioneer can enhance his recovery rates from auctions on any given day, without in any way changing his cost structure,” they wrote. “We hope that our work will help kickstart more research in the vital and ecologically important area of secondary markets for IT products.”

Read more: Starting Prices in Liquidation Auctions for IT Equipment: Evidence from Field Experiments is featured in Production and Operations Management.

About the Author(s)

Wedad Elmaghraby

Wedad J. Elmaghraby is a Professor of Operations Management and Management Science at the Robert H. Smith School of Business, University of Maryland, College Park. Her research interests are at the interface of operations management, economics and behavioral decision making. Her current research includes (1)  online auctions in business-to-business secondary markets, (2) online platforms to promote sustainable business paradigms, (3) the role of returns in learning demand and (4) behavioral factors in business-to-business contract design.

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