Impact of Intercompetitor Licensing on Remanufacturing Market Competition and Cooperation

Abstract

This research investigates the impact of intercompetitor licensing between an original equipment manufacturer (OEM) and an independent remanufacturer (IR) on (1) market competition between new and remanufactured products, (2) the IR's remanufacturing strategy, and (3) the IR's optimal quality choice for remanufactured products. In the considered supply chain, the OEM sells new products, and the IR collects used products and then sells remanufactured products to compete with the OEM. To produce remanufactured products, the IR can acquire remanufacturing technology either by paying a licensing fee to the OEM or self-developing it in-house by incurring a fixed research and development cost. We develop game-theoretic models to determine the optimal supply chain decisions concerning the royalty licensing fee, IR's remanufacturing strategy and production quality, and product sale prices.We find that a licensing contract will always induce the OEM and the IR to increase their sales price for new and remanufactured products. However, the OEM will always increase the sales price for new products to a larger degree than that of the IR. This can alleviate price competition between new and remanufactured products and make remanufactured products more competitive in the market. Under licensing cooperation, the IR will always remanufacture used products to a higher quality level which will intensify quality competition. No matter whether the royalty fee is exogenously or endogenously determined by the OEM, there exists a wide range of parameter regions such that a licensing contract will produce a win-win solution for the OEM and the IR. A licensing cooperation may be reached even when the unit royalty fee is at a relatively low level and the total royalty fee is higher than the selfdevelopment option.Managerial relevance statement: From a practical perspective, this study proposes how the OEM, and the IR should make licensing cooperation decision which aims to achieve a win-win solution. It also reveals that a royalty licensing contract can be mutually acceptable between the OEM and the IR in a wide range of parameter regions. This result is important for managers who want to engage in the 2 remanufacturing business. For the OEM, the result shows that licensing its remanufacturing technology at a low royalty fee may still be beneficial. For the IR, the result shows that seeking technology licensing may be more profitable even when the total paid royalty fee is higher than the cost of self-developing the technology. Strategic implications of royalty licensing on market competition, remanufacturing production strategy, and remanufacturing quality strategy should be carefully considered before making strategic decisions on remanufacturing and licensing cooperation.

Impact of Market Competition on Remanufacturing Investment

“…To define remanufacturing investment as manufacturers' strategies for the redesign of new products is to examine interactions between new and remanufactured products at the design stage and the following impact on manufacturers' manufacturing and remanufacturing decisions. Therefore, this study does not consider other kinds of remanufacturing investment, such as multi-brand trade-in offered by firms, as a kind of remanufacturing investment in the collection as considered by Desai, et al [48] and remanufacturing authorization wherein manufacturers authorize other supply chain members to manage remanufacturing activity on their behalf as considered by Zou, et al [49], Zhou, et al [18], and Zhou, et al [23]. This consideration is confirmed by Liu and Xiao [50] and is also in line with the principle of IPR that manufacturers are encouraged to design for recovery to facilitate the recycling or reusing of used products [2].…”

“…Customers are uniformly distributed over the interval [0,1] , and each customer purchases at most one product to satisfy his/her needs. The uniform distribution is for analytical tractability and has been widely used in the operations literature, such as Cao and Choi [51], Luo and Choi [52], and Zhou, et al [23]. Customers are heterogeneous in their willingness to pay (WTP) for the product.…”

“…Remanufacturing investment can help manufacturers reach "low-end" customers who, in general, will not or may not be able to purchase new products because of their tight budget [9]. Remanufactured products that are offered at lower prices become perfect alternatives for those customers to satisfy their needs [23]. The market shares of manufacturers' will be naturally expanded by reaching out to these customers, resulting in a market expansion effect for those firms that invest in remanufacturing operations [14].…”

Complex effects of cooperative behavior on authorized remanufacturing supply chain decisions under subsidies

“…Therefore, to develop the remanufacturer, many manufacturers aim to absorb the profits of the remanufacturing market through authorized remanufacturing [ 20 ]. However, the original manufacturer indirectly increases the competition because of authorization fees [ 21 ]. Wang et al [ 13 ] argued that in the output decision of the original manufacturer and the third-party remanufacturer, the intrusion of the third-party remanufacturer would lead to the decline of the profit of the original manufacturer.…”

Remanufacturing authorization strategies in closed-loop supply chains

“…Based on the industry practice that the profitability of remanufacturing business has attracted many retailers to offer remanufactured products in the selling channel of new products, Timoumi et al (2021) considered a two-period model to examine the conditions under which the OEM should engage in remanufacturing operations itself. Zhou et al (2023) study the impact of competition both in new and remanufactured products on the OEMs' remanufacturing investment decision with considering the characteristics that new products must be redesigned so that they are remanufacturable.…”