How Does Retailer-Oriented Remanufacturing Affect the OEM’s Quality Choice?

Abstract

We consider that a supply chain consists of an original equipment manufacturer (OEM) and a retailer. We analyze how the retailer’s remanufacturing decision affects the decision of the new products’ qualities for the OEM. We use a game theory approach to investigate the interactions between the OEM and the retailer with or without remanufacturing operation. We find the retailer’s motivation to develop the remanufacturing industry depends on the profitability of remanufactured products and the OEM’s deterring strategy. When the remanufacturing operation profit margin is low, the retailer voluntarily gives up remanufacturing; when this profit margin is moderate, the OEM induces the retailer to give up remanufacturing by improving the quality of the new product; when this profit margin is sufficiently high, the OEM cannot prevent the retailer from developing remanufacturing. The retailer developing remanufacturing as well as their threat of developing decrease the OEM’s profit because the OEM improves the quality of the new products to induce the retailer to give up remanufacturing, at the expense of its own profit. We explicitly characterize the process of the OEM from preventing to accepting the retailer developing the remanufacturing industry, as well as the changes in supply-chain members’ operating decisions and profits in the process. Finally, using MATLAB numerical analysis, we also found that the retailer’s development of the remanufacturing industry always benefits the whole supply chain, consumer surplus, and social welfare. Furthermore, the retailer’s development of the remanufacturing industry is not always good for the environment. This development is only good for the environment when the new products’ environmental impacts in the EOL stage are larger than the total environmental impacts of the remanufactured products in every stage of their life cycle.