Quality recovery or low-end recovery? Profitability and environmental impact of durable product recovery

Abstract

With the rising awareness of environmental responsibility in industrial production, a series of recovery strategies have been developed and play different roles in achieving sustainability. In this study, we examine when quality recovery, low-end recovery, and hybrid recovery result in a win-win outcome where both profitability and environmental performance can be improved for a durable product manufacturer. We develop a game-theoretic model to analyze the manufacturer's payoffs under different recovery strategies. A secondary market where used products can be resold among consumers is also considered. We obtain the results by comparing the profitability and environmental impact under each recovery strategy. Hybrid recovery causes both synergy and a contradiction effect between quality and low-end recovery. It always improves the win-win outcome of low-end recovery and it can also improve the win-win outcome of quality recovery under a high recovery standard when the recovered value is not too high. The technology improvement only achieves environmental sustainability under sufficient stringent recovery standard, otherwise, it may backfire and deteriorate the environment. We offer insights for the policymaker to understand the role of the recovery standard in achieving the win-win outcome and the importance of setting a proper recovery standard in achieving environmental sustainability.