Abstract: Endowment effect theory postulates that there is a gap between the prices which a buyer is willing to pay for and a seller would ask for. Consequently, the compensation that people ask for during product replacement usually exceeds the price one would like to offer. In this study, we attempted to investigate the behaviors of sel-lers and buyers during the process of product replacement.
In two trade-in experiments, we tested the hypothesis that a buyer of a new product would overvalue the product that he owns and undervalue the new product, while a seller of a new product would undervalue the in-cumbent product and overvalue the new product. Similarly, buyers of a new product would overvalues the in-cumbent product and undervalues the new product, hence the double-endowment effects during the process of product replacement.
Two hundred and forty one college students participated in the Experiment 1. The participants were ran-domly assigned to each of the following 6 scenarios (3 by 2): role (3): buyer seller and control; product (2): in-cumbent and new product. They were asked to fill in appropriate prices for an old product and a new product after a description of the trade-ins. In Experiment 2, one hundred and twenty college students were recruited and randomly assigned to one of the following 4 scenarios (2 by 2): role (2): buyer and seller; product (2): incumbent and new product. They were asked to rate the product using with the same methods as experiment one.
The study showed that endowment effect not only existed in buyers but in sellers, indicating double en-dowment effects exert significant influence on new product replacement decisions. The results also revealed a gap between the subjective value of incumbent and new products from buyers and sellers, which could partially explain consumers’ resistance to innovation. Current findings imply that successful launch of a new product is largely decided by consumers’ mental cost of losing the incumbent product. Therefore sellers should try to re-duce or eliminate this mental cost in order to improve the replacement rate. We should note that sellers tend to overvalue the benefits of their new products, which could impede the product replacement process as well.
This study offers an explanation for innovation resistance phenomenon in consumer psychology and helps us with better understanding of the endowment effect. Current findings also provide significant insights for new product development in marketing business.

Key words: product replacement, endowment effect, willingness-to-sell, willingness-to-buy