Competitive Quality Choice and Remanufacturing

Abstract

We consider an original equipment manufacturer (OEM) who faces competition from an independent remanufacturer (IR). The OEM decides the quality of the new product, which also determines the quality of the competing remanufactured product. The OEM and the IR then competitively determine their production quantities. We explicitly characterize how the OEM competes with the IR in equilibrium. Specifically, we show that the OEM relies more on quality as a strategic lever when it has a stronger competitive position (determined by the relative cost and value of new and remanufactured products), and in contrast it relies more heavily on limiting quantity of cores when it has a weaker competitive position. The IR's entry threat as well as its successful entry can decrease the consumer surplus. Furthermore, our results illustrate that ignoring the competition or the OEM's quality choice leads to overestimating benefits of remanufacturing for consumer and social welfare. In addition, we show an IR with either a sufficiently weak competitive position (so the OEM deters entry) or a sufficiently strong one (so the OEM is forced to limit quantity of cores) is desirable for reducing the environmental impact. Comparing our results with the benchmark in which the OEM remanufactures suggests that encouraging IRs to remanufacture in lieu of the OEMs may not benefit the environment. Furthermore, the benchmark illustrates that making remanufacturing more attractive improves the environmental impact when the remanufacturer is the OEM, while worsening it when remanufacturing is done by the IR.

Core (product) Acquisition Management for remanufacturing: a review

“…Örsdemir et al [120] consider an OEM competing with an independent remanufacturer, where the OEM decides the quality of the new product, which in turn determines the quality of the competing remanufactured product. They then decide their production quantities.…”

Owning or Outsourcing? Strategic Choice on Take-Back Operations for Third-Party Remanufacturing

“…Second, to keep our focus on our research questions, we assumed that all decisions were considered in a single-period setting. While this assumption is common in the remanufacturing literature [19,30,40], it does not reflect the relationship between a product's lifecycle and remanufacturing decisions. Third, we viewed OEMs as producers of new products and did not allow them to engage in remanufacturing.…”

“…To evaluate the social impact of outsourcing a reverse channel, we compared the optimal welfare values obtained by the two models, where our welfare function includes the consumer willingness-to-pay for remanufactured and new products as well industry profits. Based on the findings of Orsdemir et al [40] and Yenipazarli [41], our social welfare function consists of three components:…”

To License or Not to License Remanufacturing Business?

“…A growing literature in operations management addresses the issues of closed-loop supply chain (CLSC) management when new products and remanufactured ones coexist. Many scholars confirm that the entry of IRs cannibalizes the sales of OEMs because the existence of remanufactured products may erode the demand for original products [10][11][12][13][14][15]. In particular, Ferrer and Swaminathan [2] focused on a duopoly environment in which an IR may intercept cores of an OEM's products to remanufacture and sell them in future periods.…”