TWO-SIDED VERTICAL COMPETITION CONSIDERING PRODUCT QUALITY IN A MANUFACTURING-REMANUFACTURING SYSTEM

Abstract

We study two-sided vertical competition between a manufacturer and a supplier. The problem is formulated as a dynamic game where the supplier has more pricing power than the manufacturer. Based on the one-sided vertical competition modes with different recyclers as benchmarks, we derive optimal pricing and production decisions of manufacturer and supplier and further study the impacts of product quality on those decisions under the twosided vertical competition mode. A key finding is that manufacturer/supplier prefers to be a follower rather than the first one to engage in recycling activities. Specifically, when the manufacturer/supplier has engaged in recycling activities, the supplier/manufacturer has an incentive to participate in recycling activities as well. We also find that high-quality remanufactured components/ products can benefit manufacturer, supplier and consumers at the same time.