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That's no different than a car salesman offering you $1000 more for your trade-in and inflating the sales price of the new car $1000.
I'm not grasping the reasoning behind that marketing strategy.
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No, the salesman isn't inflating the price of the new item. You are getting more on trade-in than you would in cash because the salesman is spreading the costs between the items and hoping to get two deals instead of one. They will buy your gun for $750, but the business is better off if they can also turn over stock and make a sale. So, they offer you $900 if you want to put that toward purchasing another item.
They aren't inflating the price of the other item. They are actually reducing their profit, but they are making a profit where they otherwise would not be making it, and they have your trade-in to help make up some of the difference.
In other words, their prices are their prices regardless of your trade-in or even if you come in the store. However, they are willing to take a hit on their profits for the opportunity to make a sale now, sale later (of your used gun you just traded in to them), and make you happier as a customer.
It really is good business.
With that said, you virtually NEVER get the full value out of trading in an item to a business that has to then resell the item. You end up selling closer to wholesale than retail, but when you sell to another individual, you are more apt to get closer to retail. By bumping up the $ to a higher trade-in value, you will get closer to the retail value out of your gun, but still likely won't get full retail value out of it as compared to selling to an individual.