COMPETITION IN REMANUFACTURING

TLDR

A social planner can increase remanufacturing by incentivizing the OEM to raise the fraction of returned items remanufactured or by lowering the OEM’s remanufacturing costs. The paper introduces a two‑period model of remanufacturing competition and examines how an OEM can influence a local remanufacturer’s remanufacturing cost. The model pits an OEM against a local remanufacturer across multiple reverse‑logistics configurations, solves for a Nash equilibrium in the second period, and employs numerical experiments for comparative statics. Numerical results reveal that, even while competing in the sales market, the remanufacturer has incentives to reduce the OEM’s remanufacturing cost.

Abstract

We present a two‐period model of remanufacturing in the face of competition. In our model, an original equipment manufacturer (OEM) competes with a local remanufacturer (L) under many reverse logistics configurations for the returned items. After establishing the Nash Equilibrium in the second period sub‐game, we use numerical experiments for comparative statics. OEM wants to increase L'S remanufacturing cost. Surprisingly, while L competes in the sales market, she has incentives to reduce oem's remanufacturing cost. A social planner who wants to increase remanufacturing can give incentives to the OEM to increase the fraction available for remanufacturing, or reduce his remanufacturing costs.