Every time someone trades in a phone, picks a refurbished laptop over a new one or buys thrifted clothes online, they are supporting a growing circular economy — a system where used items are given a second life instead of going into a landfill. This growing trend is good for the environment, but it also creates a new kind of tension between big-name brands that sell new products and the e‑retailers that profit from used ones.
UT San Antonio researcher Minghe Sun, operations and analytics professor in the Carlos Alvarez College of Business, is using math to untangle that tension. In a study published earlier this year in the European Journal of Operational Research, Sun and his co-authors show how manufacturers and online retailers can find a balance that turns secondhand sales and customer rebates into a “win‑win” instead of a zero‑sum fight over profits.
Why secondhand is suddenly big business
The rise of online resale platforms has turned secondhand shopping from a niche activity into a booming global industry. In apparel alone, used clothing is projected to grow several times faster than the overall fashion market, and electronics trade‑in and refurbish programs are spreading from Amazon Renewed to Best Buy and beyond. There are two growing sentiments among consumers driving this trend, Sun noted: many are concerned about the environment, while others are hunting for better deals in an era of high prices.
But every used smartphone or refurbished laptop that finds a second life is also one less sale of a brand‑new product. That cannibalization directly hits manufacturers’ bottom lines.
“From the manufacturer’s perspective, they don’t want used products to eat into the market for new ones,” Sun explained. “Firms may resist allowing others to collect, recycle, refurbish and resell used products if such activities threaten their market positioning.”
That’s why many brands turn to rebates — cash back or reward points after purchase — to make new items more attractive without visibly cutting the list price.
Rebates: a stealthy weapon against resale
Unlike a straightforward sale or discount, a rebate lets a company keep its official retail price high, protect its premium brand image, but still rewards price-sensitive customers who follow the steps to claim money back or points later. Not everyone actually redeems those rebates, which lowers the real cost to the manufacturer, and the process itself generates valuable data about who is buying.
Electronic platforms frequently use these strategies, Sun noted.
“If you go to Newegg, the electronics retailer, their manufacturers offer rebates very often,” Sun said. “The manufacturer can maintain a uniform retail price over different markets. They can give the consumer the impression that they have a good quality product and maintain their retail price without openly offering a discount.”
But what happens when the rebates are so enticing that refurbishing or reselling the product is no longer profitable? Can new and secondhand sellers of the same product simultaneously thrive?
In the study, Sun and his co‑authors built a game‑theoretic model to answer these questions. The model simulates a simple but increasingly common scenario: one manufacturer sells new products through one large e‑retailer, which can in turn decide whether to also buy, refurbish and resell used versions on its platform. The manufacturer chooses the size of its rebate, and the e‑retailer chooses whether to enter the secondhand market and how to price both new and used items.
To make the model closer to real life, the team also builds in “fairness concerns.”
“Business partners don’t just care about how much profit they make; they also care about whether they feel they are getting their fair share,” Sun explained. His team uses a concept from bargaining theory, the Nash bargaining solution, as the benchmark each party uses to judge whether the final profit split feels fair.
What the model reveals
The research produces several key insights:
- Rebates can soften the blow of resale, but only up to a point. An appropriately calibrated rebate can offset some of the financial damage to the manufacturer caused by an e‑retailer entering the secondhand market. If the rebate is set well, both parties can end up better off.
- Consumers’ sensitivity to rebates decides whether resale is worth it. The model shows that an e‑retailer opens a secondhand marketplace only when consumers are not highly responsive to rebates on new products. If shoppers are very rebate‑sensitive — meaning a rebate strongly pushes them toward new items — the retailer can actually make more money by selling new products with rebates and skipping the used segment.
- A sense of fairness can lower barriers to entry. When both the manufacturer and the e‑retailer care about fair profit sharing, the model finds that it becomes mathematically easier for the retailer to justify entering the secondhand market. In other words, fairness concerns can encourage cooperation that expands the overall pie.
- There is a “goldilocks” rebate level that makes everyone better off. Within certain ranges, the model identifies rebate values that increase profits for both the manufacturer and the e‑retailer at the same time, rather than shifting profit from one side to the other. Sun describes this as a true “win‑win” outcome where new sales stay strong and the secondhand market still thrives.
The bottom line? Secondhand platforms do not have to be the enemy of manufacturers. If rebates and pricing are chosen carefully, both sides can profit while more products get a second life.
A growing footprint of green logistics
Although the paper’s formal model uses abstract parameters, Sun’s examples are firmly grounded in everyday life: laptops returned to Best Buy, electronics on Newegg with manufacturer rebates and online clothing resold through large e‑platforms. Similar dynamics emerge in certified pre‑owned cars and luxury watches, where the original maker often runs or endorses the secondhand channel.
This breakthrough publication is only one piece of Sun’s extensive, ongoing research dedicated to mapping out the future of circular and shared economies.
“This stream of research has been my main focus for the last three to five years,” Sun said. Some of his recent and forthcoming works explore fresh product supply chains, mechanisms to regulate greenhouse gas emissions, and the economics behind bike sharing in urban hubs.
Across these projects, a common theme emerges: environmental benefits and profit motives can align, but only when firms carefully design incentives such as rebates so that every major player feels fairly treated and financially rewarded.
