Frontiers in Business, Economics and Management 
ISSN: 2766-824X | Vol. 8, No. 1, 2023 

 

210 

New	Energy	Vehicle	Pricing	Strategy	Based	on	Residual	
Value	Estimation	
Tianshuai Xie1, Fanghui Mou2 

1Modern Postal College, Chongqing University of Posts and Telecommunications, Chongqing 400065, PR China 
2College of Economics and Management, Chongqing University of Posts and Telecommunications, Chongqing 400065, China 

 

Abstract: With the increasing depletion of traditional resources such as oil and the promotion of new energy vehicles by 
national policies, the production and purchase of new energy vehicles are increasing day by day, but the proportion of new energy 
vehicles in total vehicle sales is still low compared to the sales of traditional vehicles. Therefore, this paper investigates the 
influence of consumers' residual value estimation on consumers' purchasing behavior when purchasing new energy vehicles by 
analyzing consumers' purchasing decisions and producers' production decisions, and finds that: consumers' residual value 
estimation affects producers' decisions, and for the case where producers sell only one product, the best strategy choice is 
achieved by comparing different solutions; in ensuring that new energy used vehicles have value, the residual value has a greater 
impact on consumer purchase, and the sales price will increase with the increase of residual value estimation; new energy vehicle 
enterprises can increase consumers' willingness to purchase new energy vehicles, enhance the profits of vehicle enterprises, and 
promote the promotion of new energy vehicles by improving the residual value rate of new energy vehicles. 

Keywords: New energy vehicles, Recycling pricing, Closed-loop supply chain, Residual value estimation. 
 

1. Introduction 
With the over-exploitation of fossil energy and the 

increasing depletion of traditional energy sources such as oil, 
the development of new energy vehicle industry is an 
inevitable requirement for the development of a low-carbon 
green economy, and the government has successively 
introduced various tax incentives including financial 
subsidies, purchase tax, and consumption tax to support the 
research and development of new energy vehicles in China. 
The relevant policies have indeed stimulated the consumption 
of electric vehicles to a certain extent, however, with the 
decrease of government subsidies year by year, the sales of 
new energy vehicles have also declined significantly. In 
addition, during the acquisition process, consumers have 
started to include the level of residual value into the overall 
purchase cost. For example, the initial selling price of an EV 
of a certain brand is higher than that of a fuel car of the same 
model, and the cost of using it in 3 years is lower than that of 
a fuel car due to the relatively low power and maintenance 
costs. However, if we consider the residual value level after 3 
years, the total cost of the EV is still higher than that of the 
fuel car. Therefore, the low residual value of new energy 
vehicles is one of the reasons for their declining sales. 
Moreover, the low residual value of new energy vehicles also 
affects their transaction cost and circulation value in the used 
car market. Therefore, how the pricing decision between 
consumers and production changes when considering the 
residual value of new energy vehicles, and how to deal with 
the diseconomics of new energy vehicles caused by low 
residual value of new energy vehicles becomes an urgent 
issue to be solved. 

2. Literature Review 
The research content of this paper mainly involves the two 

aspects of centralized drug procurement and drug supply 
chain coordination, and the relevant literature will be sorted 

out from these two aspects. 

2.1. Centralized drug procurement 
Currently, most of the modeling research on centralized 

procurement of drugs is carried out from the perspective of 
maximizing supply chain profits. For example, Hu et al. (2012) 
construct a supply chain model of a drug manufacturer, a 
GPO, and n suppliers (hospitals, etc.). They use game theory 
to analyze the impact of factors such as contract management 
fees and membership fees on supply chain performance. They 
find that the higher the efficiency of the GPO contract, the 
higher the profit each supply chain member can receive. 
Safaei and Heidarpoor et al. (2017) assume that pharmacies 
have procurement partnerships with neighboring pharmacies. 
They construct a multi-objective optimization model with 
multiple pharmacies, multiple suppliers, and GPO clusters. 
They conclude that GPOs could reduce pharmacies' 
procurement costs and increase supply chain profits.  

2.2. Pharmaceutical supply chain coordination 
Another issue relevant to this study is the study of 

coordination contracts in the pharmaceutical supply chain. In 
the existing literature, most of the research issues of drug 
supply chain coordination by scholars do not involve group 
purchasing organizations. For example, Ma et al. (2019) study 
the impact of patient attention levels of drug manufacturers 
and retailers on corporate pricing and quality decisions. They 
propose the selection conditions for wholesale price contracts 
and revenue-sharing contracts that achieve corporate profit 
Pareto. Tat et al. (2020) consider that the drug supply chain 
including drug suppliers and retailers can resell excess drugs 
in the secondary market, constructing a centralized and 
decentralized model. In follow-up work, they propose a 
combination model of drug repurchase plus shortage risk 
sharing to achieve supply chain coordination, which 
concludes that this model can coordinate the drug supply 
chain and improve the overall profit.  

Given this, this paper considers the characteristics of the 



 

211 

actual drug supply chain involving centralized procurement 
and the public welfare of medical institutions, constructs a 
drug supply chain model with different decision-making 
modes, and proposes an appropriate coordination contract 
from the perspective of GPO platform and medical institution 
cooperation to achieve a win-win situation for members of the 
pharmaceutical supply chain and the improvement of the 
overall social welfare. In addition, combined with China’s 
current drug policy, the feasibility of the coordination 
contract is demonstrated, and the effectiveness of the 
designed contract model on the contract coordination of the 
drug supply chain under the influence of centralized 
procurement and public welfare is verified through case 
analysis. 

3. Problem Description 
Suppose there are two groups of car manufacturers and 

consumers in the closed-loop supply chain, with energy 
shortage becoming more and more serious, and the low value 
retention rate restricting consumers' purchase. For simplicity, 
this paper only considers the impact of the selling price and 
the recycling price on the consumer's purchase decision, and 
the willingness to pay is not affected by other factors. 

The sequence of events: first, the producer decides the price 
of the product, then the consumer decides whether to buy the 
product; after the product life cycle, the producer decides z 
the final recycling price, then the consumer decides whether 
to sell the used car. There are three natural time sequences, so 
it is a three-stage dynamic game. 

 
 

 
Figure 1. Considering the closed-loop supply chain structure and the order of decision-making 

 

 
Table 1. Variable symbols and definitions 

Variable Symbols Variable Meaning Variable Symbols Variable Meaning 

rp
 

Recycling Price X  Willingness to pay 

sp
 

Sales price XP
 Maximum willingness to 

pay 

rg
 

Processing profit Ms
 

Sales Profit 

  Production costs Mr
 

Recovery profit 

Y  Residual value estimation M
 

Total profit 

YP
 

Consumer estimates of the maximum residual value of used cars 

 
 
 
 
 



 

212 

 

4. Model 
4.1. Model considering residual value 

estimation 

 

 
Consumers: Consumers in the purchase phase have a 

willingness to pay for the product and an estimate of the 
salvage value of the product in case of later recall. Define X 
as the consumer's willingness to pay and, for simplicity, 
assume that X  obeys a uniform distribution of [0, ]XP , 

where XP denotes the maximum willingness to pay among 
consumers. However, the estimate of the salvage value of the 
car affects consumer demand. Assume that the potential 
consumer market size is normalized to 1. Therefore, with 
other assumptions held constant, consumers will buy the 
product when sX Y p   (as shown) and vice versa, and 

the selling price s rp p . Therefore, consumer demand is: 

 

 

 


  




  


   



  

 



2

2

1
2

2 2

2

2

0
s Y

s Y s X

Y s X

s

X Y

s Y X

X

X

Y

s Y

X Y

p

P P

p P P

P

P p P

q

P

P

p

P p P

P p P
P

P

    (1) 

 
At the end of the product life cycle, consumers who have 

previously purchased the product become the suppliers of the 
recycling market, and consumers have certain estimates of the 
current product value. The consumer's salvage value estimate 

Y becomes a random sample of the salvage value estimate as 
a whole, and therefore still obeys a uniform distribution with

  0, YP , usually, X YP P . 
The density of its distribution becomes: 

 

  


 
 



ʹ

ʹ

ʹ
if 0

0 otherwise

s
Y

YY

q
y P

f y P         (2) 

 
When a consumer sells a used product, he or she considers 

the relationship between the recycling price rp  informed by 

the producer and the salvage value estimate Y . Only when 


r
p Y , the consumers will choose to sell the product, 

otherwise they will not. With this the number of products that 
consumers are willing to sell is: 

 

  sr r
Y

q
q p

P
              (3) 

 

Where r Yp P , because at that time r Yp P , r sq q , 
the number of recovered cars exceeds the number of sales, 
which is not consistent with the actual situation. 

 
Producer: the production cost per unit of product is  , the 

selling price of the new energy vehicle is sp  ( sp   to 
ensure that the producer can manufacture the product for 

profit), and the sales profit MS  is: 

 

 ( )MS s sp q              (4) 
 

At the end of the product's life cycle, the producer will 
recycle the product that has been sold for environmental 
protection and other factors, assuming that its processing 

profit is gr , ( gr  is the profit remaining after processing 
after the producer recycles the used product, excluding the 

recycling price, and gr  ), then the producer's profit 

MR  at the recycling stage is: 

 

  ( )MR r r rg p q            (5) 
 

The producer's profit in the whole closed-loop supply chain 
is: 

 

 
( ) ( )M r r r s sg p q p q            (6) 

 
The producer's decision model is: after considering the 

mutual influence between decisions, the producer's product 
price and recycling price decisions in the sales stage are not 

made simultaneously, but the optimal price 
*
sp  of the 

product is first decided by maximizing the overall profit, i.e., 

equation (6), and then the optimal recycling price 
*
rp  is 

decided by maximizing the recycling profit, i.e., the 
producer's announcement of the recycling price itself is 
actually a two-stage dynamic game. 

The inverse induction method is used to solve the problem. 
There are two decisions in the second stage, the product 
purchase decision of the consumer and the used car sale 
decision, whose optimal decisions have been given by 
equations (6) and (3), respectively. To solve the optimal 
decision of the producer in the first stage, first substitute 
equation (3) into the recycling profit function equation (4) to 



 

213 

solve for the optimal recycling price  *r sp p , then substitute 
equation (5) and equation (4) into the total profit function 

equation of the producer, and then substitute  *r sp p  into the 
total profit function and derive the total profit function to 

solve for the optimal product price 
*
sp  of the producer (see 

Appendix 1 for the specific calculation steps). 

Proposition 1.The producer's optimal product price 
*

s
p  

and recycling price 
*

r
p  are given by Table 2. 

 
Table 2. Producer's optimal product price and recovery price 

  0 2r Yg P   2r Yg P
 

   0
1

2
X Y
P P   

1

2
X Y
P P    0

3

2
X Y
P P   

3

2
X Y
P P  

*

s
p
    

2 24 2 4

8
r Y Y Y X

Y

g P P P P

P
 YP

 
    1 2 2 3 2

4
r XY
g P P  YP

 

*

r
p
 

2
r
g

 
2
r
g

 YP  YP
 

 

The proof of Proposition 1 and the other proofs of theorems 

and propositions are given in the appendix. 
Proposition 1 shows that when the consumer decision 

considers the residual value estimate, when the selling price 
 

Y s X
P p P  and the production cost is low, the optimal 

product price 
*

s
p  is an increasing function of the unit 

product production cost  , the consumer willingness to pay 
X
P  and the consumer residual value estimate YP , and a 

decreasing function of the unit used car disposal profit rg . 

That is, the producer's product pricing will increase with the 
production cost, the consumer willingness to pay and the 
consumer residual value estimate and increases and decreases 
as the unit used car disposal profit increases; the optimal 

recycling price 
*

r
p  is is an increasing function of the unit 

used car disposal profit rg and the consumer salvage 

estimate YP , i.e., the producer's recycling price will increase 

as the unit used car disposal profit and the consumer salvage 

estimate increase. 
When the production cost is high, the unit used car disposal 

profit will no longer affect the optimal selling price, and the 

optimal recovery price 
*

r
p  is an increasing function of the 

unit used car disposal profit rg , and the consumer residual 

value estimate YP . That is, the producer's recovery price will 

increase as the unit used car disposal profit and the consumer 
residual value estimate increase. 

The equilibrium sales quantity 
*

s
q  can be obtained by 

substituting the producer's optimal product price 
*

s
p  in 

Proposition 1 into the (1) equation, then substituting 
*

s
q  and 

the producer's optimal price 
*

r
p  in Proposition 1 into the (3) 

equation to obtain the equilibrium recovery quantity 
*

r
q , and 

substituting 
*

s
p 、

*

s
q 、

*

r
p and

*

r
q  into the (6 ) equation to 

obtain the producer's equilibrium total profit *
M

. The 

results are shown in Table 3. 

 
Table 3. Equilibrium results when consumers consider residual value estimation 

   0 2r Yg P
   2

r Y
g P  

   0
1

2
X Y
P P   

1

2
X Y
P P    0

3

2
X Y
P P   

3

2
X Y
P P  

*

s
q
      2 2 2 2

8

r Y Y X

Y X

g P P P

P P

 

1
2

Y

X

P

P

     

2 2 2

4
r Y X

X

g P P

P
 1

2
Y

X

P

P

 

*

r
q
      3

2

2 2 2

16

r r Y Y X

Y X

g g P P P

P P

 
 
  
 

1 1 2

4
r

X Y

g
P P

     

2 2 2

4
r Y X

X

g P P

P
 1

2
Y

X

P

P

 

*
M

       
2

2

2

2 2 2

64

r Y Y X

Y X

g P P P

P P

 
      


2 4 2

8

r V V V X

V X

g P P P P

PP

       22 2 2
16

r Y X

X

g P P

P
 

     2
2

r Y X

X

g P P

P

 

 
Table 3 shows that if the disposal profit is not high (i.e., 

 0 2
r Y
g P

), only part of the used and discarded products 

will be recycled under the premise that consumers consider 
used cars to have salvage value, and if the disposal profit is 

high enough (i.e.,  2
r Y
g P

), all sold products will be 

recycled and the circular economy will be fully realized. 



 

214 

4.2. Model without considering residual value 
estimation 

Consumer C : has a willingness to pay for the product 

and has a salvage value estimate for the used car. Define X  

as willingness to pay and Y  as salvage value estimate, both 
of which are independent of each other. For simplicity, 
assume that X  obeys a uniform distribution with [0, ]XP , 

where XP  denotes the maximum willingness to pay among 

consumers, and Y  obeys a uniform distribution with 
[0, ]

Y
P , where PR denotes the maximum salvage estimate 

among consumers. Usually, X YP P . 
Consumers will consider the relationship between 

willingness to pay X  and product price sp  when they buy 

the product, when  sX p , consumers will buy the product, 
and vice versa, so the consumer demand is: 

 

  1 ss
X

p
q

P
              (7) 

 

s X
p P  in equation (7) because s Xp P  when 0sq  , 

when there is no product demand. 
After the end of the product life cycle, the consumer sale 

volume remains in equation (3). 
Producer M  : Product sales profit MS   and recovery 

profit MR  remain as well as total profit remains (4) (5) (6) 
respectively. 

The solution is solved by the inverse induction method. 
There are two decisions in the second stage, namely, the 
consumer's product purchase decision and the used car sale 
decision, whose optimal decisions have been given by Eqs. (7) 
and (3), respectively. To solve the optimal decision of the 
producer in the first stage, first substitute equation (3) into the 
recycling profit function equation (5) to solve for the optimal 

recycling price  *r sp p  , then substitute equation (7) and 
equation (3) into the total producer profit function equation 

(6), then substitute  *r sp p   into the result to solve for the 
optimal producer product price 

*

s
p  , and finally reverse 

substitution. 

Proposition 2.The producer's optimal product price 
*

s
p and 

recycling price 
*

r
p  are given by Table 4. 

 
Table 4. Producer's optimal product price and recovery price 

  0 2r Yg P   2r Yg P  

*

s
p  

   24
8

Y X r

Y

P P g

P
      

2

X r Y
P g P

 

*

r
p  

2
r
g

 YP  

 

Proposition 2 shows that the optimal product price 
*

s
p  is 

an increasing function of unit product production cost  , 
consumer willingness to pay XP  and consumer residual 

value estimate YP , and a decreasing function of unit used car 

disposal profit rg  .That is, the producer's product pricing will 

increase with the increase in production cost, consumer 
willingness to pay, and consumer residual value estimate, and 
decrease with the increase in unit used car disposal profit The 

optimal recycling price 
*

r
p  is an increasing function of the 

unit used car disposal profit rg  and the consumer salvage 

estimate YP , i.e., the producer's recycling price will increase 

with the increase of the unit used car disposal profit and the 
consumer salvage estimate. 

Substituting the producer's optimal product price 
*

s
p  in 

Proposition 2 into equation (7) yields the equilibrium quantity 

sold 
*

s
q . Substituting 

*

s
q  and the producer's optimal price 

*

r
p  in Proposition 2 into equation (3 ) yields the equilibrium 

quantity recovered 
*

r
q . Substituting

*

s
p 、

*

s
q 、

*

r
p and

*

r
q  into 

equation (6) yields the producer's equilibrium total profit 

*
M

. The results are shown in Table 5. 

 
Table 5. Equilibrium results for consumers without considering residual value estimates 

   0 2r Yg P    2r Yg P  

*

s
q  

   24
8

Y X r

X Y

P P g

P P
 

     
2

X r Y

X

P g P

P
 

*

r
q  

    2
2

4

16

r Y X r

X Y

g P P g

P P
 

     
2

X r Y

X

P g P

P
 

*
M
 

   
2

2

2

4

64

Y X r

X Y

P P g

P P
 

      
2

4

X r Y

X

P g P

P
 

 



 

215 

 
Table 5 shows that under the premise that consumers 

consider used cars to have salvage value, if the disposal profit 
is not high (i.e.,  0 2r Yg P ), only part of the used and 
discarded products will be recycled, and if the disposal profit 
is high enough (i.e.,  2r Yg P ), all sold products will be 
recycled and the circular economy will be fully realized. 

5. Balanced Strategy and Analysis of 
Results 

This section compares the equilibrium differences between 
the consumer's decision to consider salvage estimates at the 
time of purchase and the decision not to consider salvage 
estimates. To facilitate the distinction and expression, 

subscripts Iand II are added, such as 
*

s
p  to denote the 

equilibrium price of the product when residual value 

estimation is considered, 
*

s
p  to denote the equilibrium 

price without considering residual value estimation, and so on. 

Proposition 3.  
* *

I IIs s
p p 、  

* *

I IIs s
q q ，  

* *

I IIr r
p p 、

 
* *

I IIr r
q q . 

Proposition 4.    
* *

I IIM M
. 

Propositions 3 and 4 show that when it is profitable for the 
producer to recycle used cars, the equilibrium product price is 
higher under the salvage estimate than under the salvage 
estimate, except that the equilibrium recycling price remains 
the same under both decision alternatives, and both the 
equilibrium product sales and recycling quantity are higher 
than under the salvage estimate. When the profit per unit of 
used car disposal is greater than zero, the equilibrium total 
profit that the producer can obtain without considering the 
salvage estimate is higher than the equilibrium total profit that 
can be obtained without considering the salvage estimate. It 
can be seen that, for the better development of enterprises, 
new energy vehicle enterprises can try to guide consumers to 
recognize the importance of salvage value. Due to the 
limitation of battery life and the cost of getting a new car, the 
old car retention rate of new cars will basically not exceed 50% 
after three years. Although the retention of some hybrid cars 
is quite good, but in some urban areas, only accept the pure 
electric car customers, the residual value is still a great 
constraint on their willingness to buy a car. Therefore car 
companies can use buy-back programs or provide multi-year 
warranty services to enhance the residual value of cars and 
thus promote business development. 

6. Conclusion 
This paper constructs a two-stage dynamic game model 

based on the minimal closed-loop supply chain structure with 
full consideration of consumers' decision-making behavior to 
analyze which decision the producer should take in the 
production decision and recycling decision in the closed-loop 
supply chain: whether the consumer considers salvage 
estimation or not. It is found that when the profit per unit of 
used car disposal is greater than zero, consumers consider 
residual value estimation can make producers increase 
product prices, sell more products, and recycle more used cars, 
thus gaining higher total profits, when consumers consider 

residual value estimation is the optimal decision for producers 
in the closed-loop supply chain. Therefore, it is profitable for 
producers to increase the residual value of used cars and thus 
promote the residual value estimation of consumers, and by 
increasing the residual value estimation, the demand for new 
energy vehicles can be increased, thus achieving the purpose 
of promoting new energy vehicles. 

References 
[1] Roland Berger Strategy Consulting. Development and 

challenges of new energy vehicles in China. Auto & 
Accessories, 2020(08), 48-53. 

[2] CHEN Xiujuan. The value retention rate of new energy 
vehicles has been lost[J].Car Watch,2019(10):101-103. 

[3] LI Xiangyu,LI Bingyang,WU Yanjie. Analysis of the retained 
value rate of used passenger cars in China in 2020 based on big 
data. Cars & Accessories, 2020(17), 63-65. 

[4] Li J., Zhou Y., Yu D.& Liu C. Consumers’ Purchase Intention 
of New Energy Vehicles: Do Product-Life-Cycle Policy 
Portfolios Matter? Sustainability, 2020, 12(5), 1711. 

[5] Lin Y., Wu J.& Xiong Y. Sensitivity of the Nonsubsidized 
Consumption Promotion Mechanisms of New Energy Vehicles 
to Potential Consumers’ Purchase Intention. Sustainability, 
2021, 13(8), 4293. 

[6] Yang C., Tu J.& Jiang Q. The Influential Factors of Consumers’ 
Sustainable Consumption: A Case on Electric Vehicles in 
China. Sustainability, 2020, 12(8), 3496. 

[7] Fazeli R., Davidsdottir B., Shafiei E., Stefansson H.& 
Asgeirsson E. I. Multi-criteria decision analysis of fiscal 
policies promoting the adoption of electric vehicles. Energy 
Procedia, 2017, 142, 2511-2516. 

[8] Li Hongwei,Chen Chuan. Research on Residual Value 
Evaluation of Battery Electric Vehicles Based on Replacement 
Cost Method[J]. IOP Conference Series: Earth and 
Environmental Science,2020,461(1). 

[9] ZUO Weijia, LI Yanya, XIONG Chaosong. An empirical 
analysis of the residual value rate and selling price of used 
cars[C]//.2017 (5th) National College Students Statistical 
Modeling Competition Winning Paper Selection.,2017:859-
887. 

[10] WANG Lingzhi. Research on closed-loop supply chain 
efficiency considering consumer benefits [D]. Tianjin 
University, 2016. 

[11] ZHU Wenqing. Research on consumption pattern of new 
energy vehicles based on perceived ris[D]. Hunan University, 
2016. 

[12] DU Pengqi, JING Yi. Pricing and production decisions of 
manufacturing/remanufactured products based on "trade-in" 
and "trade-in" strategies [J]. Computer integrated 
manufacturing systems, 2020, 26(10), 2827-2837. 

[13] HOU Yanhui, WANG Xiaoxiao, HAO Min, YU Hao, RAO 
Weizhen. Research on Pricing Strategy of Dual-channel 
Reverse Supply Chain under Government Subsidies and 
Platform Publicity Investment[J]. Operations research and 
management, 2019, 28(05), 84-91. 

[14] CHEN Kegui, WANG Xinyu, HUANG Min, REN Liang. 
Production pricing and sales incentive mechanism considering 
the change of residual value and consumers' low-carbon 
preference[J].Operations research and management, 2022, 
31(05): 162-168. 

[15] WANG Xiayang,FU Ke,YU Bin. Retailer Pricing and 
Inventory Decision Considering Salvage Value Change and 
Customer Heterogeneity [J]. Chinese Management Science, 
2016, 24(01), 97-106. 

[16]