Optimal Grading Policies in the Online Acquisition of Used Products

Abstract

Although online reverse commerce (recommerce) is convenient and efficient, it is not without caveats. It limits recommerce firms’ flexibility to offer personalized prices and may cause mismatched grading between the firms and sellers of used products. This study examines a recommerce firm’s decision on grading criteria and prices. We find that the firm’s optimal policy exhibits two distinctly different patterns depending on the trade value of the product. We demonstrate that sellers’ overestimate and underestimate errors have qualitatively different effects on firm profitability, and the effects crucially rely on the type of optimal policy. These findings can apprise firms on how to preset sorting criteria and prices as well as reduce grading errors.

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Acknowledgments

This work was supported by the National Natural Science Foundation of China under Grant Nos.71802037 and 71490723.

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Correspondence to Jian Chen.

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Xiang Chu received the B.Sc. and M.Sc. degrees in mathematics from Dalian University of Technology in 2006 and 2008, and the Ph.D. degree in management information system from the same university in 2015. He is an associate professor of management science and engineering at Dalian Maritime University. His major research interests include logistics and supply chain management.

Zhong Wen received Ph.D. degree in information systems in 2007 from New York University. He is an associate professor of management science and engineering at Beiing Foreign Studies University. Currently his major research interests include e-markets, e-commerce, and green supply chains.

Jian Chen is Lenovo Chair Professor and Chairman of Management Science Department, Director of Research Center for Contemporary Management, Tsinghua University. He received the B.Sc. degree in electrical engineering from Tsinghua University, Beijing, China, in 1983, and the M.Sc. and the Ph.D. degree both in systems engineering from the same University in 1986 and 1989, respectively. His main research interests include supply chain management, E-commerce, decision support systems. Dr. Chen has published over 200 papers in refereed journals and has been a principal investigator for about 50 grants or research contracts with National Science Foundation of China, governmental organizations and companies. He has been invited to present several plenary lectures at international conferences. He has also been elected to IEEE Fellow. He also serves/served as editor/area editor/associate editor/editorial board member for many international journals.

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Chu, X., Wen, Z. & Chen, J. Optimal Grading Policies in the Online Acquisition of Used Products. J. Syst. Sci. Syst. Eng. 30, 29–43 (2021). https://doi.org/10.1007/s11518-021-5479-3

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Keywords

  • Closed-loop supply chains
  • used-product acquisition management
  • recommerce
  • grading error
  • grading policy