Whether to Implement Privacy Protection in Trade-Ins Under Competition

Growing consumer privacy concerns have led firms, such as HP, to introduce trade-in services with privacy protection, while others, such as ASUS, continue to provide trade-in services without such protection. In this article, we focus on two competitive firms to explore whether they should provide a trade-in service with privacy protection. We categorize replacement consumers into two groups based on their privacy concerns. The first group comprises consumers who have higher privacy concerns and are unwilling to trade in their old products without any privacy protection. The second group comprises consumers who have lower privacy concerns. We find that equilibrium outcomes are influenced by the proportion and behavior of consumers with high privacy concerns, the level of competition, the unit cost of privacy protection, and product durability. Additionally, we observe a prisoner's dilemma where both firms opt to offer a trade-in service without privacy protection under certain conditions and note that firms may adopt different trade-in strategies to mitigate the cannibalization effect of intensive competition. Interestingly, compared with competitive provision, the exclusive provision of privacy protection services can enhance consumer surplus in a less competitive market, whereas compared with no provision, the exclusive provision of privacy protection can reduce consumer surplus in a highly competitive market. These findings can guide firms in making informed trade-in decisions regarding privacy concerns.

I. Introduction

Growing consumer privacy concerns play an important role in the process of collecting used smart products [1]. Empowered by technologies, such as cloud, Internet of Things, and big data analytics, smart devices, such as smartphones, tablets, and smart cars, possess the ability to collect, monitor, control, and optimize user data [2], [3]. These data, stored within the physical components of smart products, have the potential to expose consumers' personal information during the product recovery process. For example, according to white hat hacker GreenTheOnly [4], Tesla does not erase personal data from replaced components (e.g., media control units and autopilot hardware). Each old module still carries personal information about the previous user, such as “owner's home and work locations, all saved Wi-Fi passwords, calendar entries, call lists, and address books from paired phones, Netflix, and other stored session cookies.” Additionally, according to a survey conducted by Blancco [5], approximately 26% of the consumers are unwilling to participate in a trade-in process that lacks adequate privacy protection, citing privacy concerns. This subgroup of consumers, characterized by their heightened privacy apprehensions, can be labeled as individuals with high privacy concerns. There is limited research on the impact of privacy concerns on trade-in promotions, although many studies have focused on privacy concerns in the forward supply chain [6], [7], [8].