Risk-Averse Pricing Decisions Related to Recyclables' Quality in a Closed-Loop Supply Chain

Abstract

In a closed-loop supply chain, uncertainty of recyclables' quality is a major factor of supply chain members' decision-making. Because of this uncertainty, manufacturers must pay varying manufacturing costs for remanufacturing recyclables. Our study assumed that manufacturers are risk-averse towards uncertainty in manufacturing costs and constructed a retailer recycling model and a third-party recycling model to investigate pricing decisions in a decentralized closed-loop supply chain under uncertainty about recyclables' quality. Our findings can be summarized as follows: (1) the higher the degree of consumer preference for remanufactured products, the higher the wholesale and retail prices of remanufactured products and the higher the recycling price of used products; (2) the two recycling models showed a U-shaped relationship between supply chain revenue and the degree of consumer preference for remanufactured products, and this supply chain revenue is related to the consumer preference coefficient; (3) there is a U-shaped relationship between the retailer's expected revenue and the degree of consumer preference for remanufactured products in the R mode and an M-shaped relationship between them in the 3P mode; (4) in both recycling modes, the manufacturer's risk aversion is inversely proportional to supply chain revenue, and supply chain revenue in the R mode is higher than that in the 3P mode; and (5) the higher the uncertainty of recyclables' quality, the lower the recycling price of used products and the lower the manufacturer's enthusiasm for recycling or for used products.