Analysis for recycling and remanufacturing strategies in a supply chain considering consumers’ heterogeneous WTP

Resources, Conservation & Recycling 148 (2019) 80–90

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Full length article

Analysis for recycling and remanufacturing strategies in a supply chain considering consumers’ heterogeneous WTP

T

Xiaofeng Longa,b, Jiali Gea, , Tong Shua, Yu Liuc, ⁎

⁎

a

School of Business Administration, Hunan University, Changsha, 410082, China Department of Business Administration, Hunan University of Finance and Economics, Changsha, Hunan, 410205, China c Institute of Science and Development, Chinese Academy of Sciences, Beijing, 100190, China b

ARTICLE INFO

ABSTRACT

Keywords: Willingness to pay Hybrid remanufacturing mode Patent license Recycling rate Stackelberg game Closed loop supply chain

Empirical and theoretical research has shown that consumers’ willingness to pay (WTP) has a significant impact on manufacturers’ decisions. Based on these findings, we establish models for multiple remanufacturing modes considering WTP heterogeneity or different remanufactured products, in one-period and two-period closed-loop supply chain (CLSC) scenarios, to identify the optimal recycling and remanufacturing decisions of manufacturers. We find that manufacturers should participate in remanufacturing in one-period or two-period settings to earn more profits. In the one-period scenario, hybrid remanufacturing is better for the manufacturer than single remanufacturing, and the manufacturer chooses its remanufacturing partner based on the lower remanufacturing cost. In the two-period scenario, when the WTP ratio is above a certain threshold, the manufacturer chooses the third party as its joint recycling partner to obtain higher consumer surplus, a higher recycling rate, and higher profits. If the WTP ratio is high enough, hybrid remanufacturing is better for the manufacturer. The manufacturer does not authorize the distributor to engage in remanufacturing, for this choice yields the lowest profits for the manufacturer independent of WTP ratio. These results have policy implications from the perspective of CLSC cooperative recycling and remanufacturing.

1. Introduction The closed-loop supply chain (CLSC) is a closed-goods supply chain, by which goods are circulated by distribution systems using a combination of manufacturing and remanufacturing (Savaskan and Wassenhove, 2004).Collection, recycling, and remanufacturing procedures are important components of the CLSC. Firms recycle used products and recover the value of waste products through remanufacturing. Under remanufacturing operations, used products are taken as inputs, restored to as-new condition, and thenresold (Atasu et al., 2010). Recycling and remanufacturing operations are a key concern of scholars and business managers, anda major part of academic research focuses on the importance and benefits of recycling (Kumar et al., 2017; Wang et al., 2018, 2019).Moreover, remanufacturing can save materials and generate profits for enterprises (Ferrer and Swaminathan, 2006; Atasu et al., 2008a; Govindan et al., 2015; Liao et al., 2019). Enterprises such as Kodak, Hewlett–Packard, and Xerox are already participating in product recovery and remanufacturing (Qiang et al., 2013). Despite the economic and environmental merits of remanufacturing, the reselling and remarketing of remanufactured products can be

⁎

challenging. From consumers’ perspective, there may be low incentive to purchase remanufactured products (Xu et al., 2017). Customers have a different perception of remanufactured products (Blue and Green Tomorrow, 2016), and show different levels of willingness to pay (WTP).This influences the quantities of new and remanufactured products, further affecting firms’ CLSC recycling and remanufacturing decisions. This study aims to answer the following research questions: How does WTP affect recycling and remanufacturing decisions? Is a firm more profitable in one-period settings when comparing single-agent remanufacturing with hybrid remanufacturing? What is the influence of the recycling rate and capacity constraint in two-period settings? The main contributions of this study are as follows: First, this study analyzes the remanufacturing production problem of the manufacturer in a two-stage CLSC, considering recycling, remanufacturing, and consumers’ WTP heterogeneity for different remanufactured products. According to Subramanian and Subramanyam (2012), consumers have higher WTP for products remanufactured by original equipment manufacturers (OEMs) than for products remanufactured by third parties, increasing the heterogeneity of production decisions. Second, manufacturers often face a plethora of choices in both academic research and

Corresponding authors. E-mail addresses: [email protected] (J. Ge), [email protected] (Y. Liu).

https://doi.org/10.1016/j.resconrec.2019.05.001 Received 13 December 2018; Received in revised form 1 May 2019; Accepted 1 May 2019 Available online 22 May 2019 0921-3449/ © 2019 Elsevier B.V. All rights reserved.

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practice, such as whether to adopt remanufacturing themselves, to authorize others to do so, orto undertake hybrid remanufacturing. The results of this study can be used as a reference for choosing remanufacturing modes considering one-period and two-period CLSCs. Third, distributors are widely involved in recycling and remanufacturing in practice (Xiong et al., 2011), but this is rarely mentioned in the existing research. The present study fills this gap by comparing hybrid remanufacturing modes in terms of consumers’ WTP heterogeneity for remanufactured products. The rest of this article is organized as follows. Section 2 presents a literature review. Section 3 describes the theoretical models and related method, and then presents remanufacturing production modes in oneperiod settings. Section 4 further discusses remanufacturing modes, considering the recycling ratio and capacity constraint in two-period settings. Finally, Section 5 concludes and lists topics for future research.

introduced duopoly competition into a two-stage model to develop and analyze a production and trade-in pricing framework for a durable remanufacturable product. Hong et al. (2017) investigated two licensing patterns within the CLSC: fixed fee and royalty (in which recycling competition influences production quantities and recycling rates. Li et al. (2017) studied the optimal price and production quantity of new and remanufactured products using a two-stage model with two scenarios: remanufacturing is conducted by the OEM and by the third-party remanufacturer. Some CLSC research of WTP has used a combination of theoretical and empirical methods. Abbey et al. (2015) investigated the optimal pricing of new and remanufactured products using a WTP model based on extensive experimentation. Abbey et al. (2017) provided empirical, analytical, and theoretical behavioral foundations for the use of more refined demand models for setting remanufactured product prices. The literature review shows that many studies have made a significant contribution to remanufacturing and recycling strategies. Most of the existing research has considered WTP heterogeneity for new and remanufactured products and have focused on competition between the manufacturer and third party. However, these studies have not considered hybrid remanufacturing problems in one- and two-period CLSCs. To deal with the multiple entities involved in remanufacturing, patent licensing has been developed as an operational strategy of OEMs, by which a resale license fee charged by the manufacturer can resist external competition by distributors or third-party remanufacturers to a certain degree. Huang and Wang (2017), the closest study to ours, developed three remanufacturing models in a single period, assumed the same price for new and remanufactured products, and discussed the impacts of remanufacturing ability on supply chain members and environmental sustainability. Unlike Huang and Wang (2017), in the present study, we consider that consumers’ WTP heterogeneity affects remanufacturing modes from the manufacturer’s viewpoint. Li et al. (2017) studied the optimal price and production quantities considering both the impact of the product life cycle and the influence of consumers’ perceived value of new and remanufactured products.In our study, we analyze hybrid remanufacturing modes with consumers’ WTP heterogeneity for remanufactured products. In addition, in Liu and Liu (2017), an OEM authorizes a third-party remanufacturer to remanufacture, but the models do not consider the distributor. Our study considers the distributor as a subject of remanufacturing and seller of new products, as is widely observed in remanufacturing enterprises. For example, Lei Shing Hong is not only is a distributor for Caterpillar, but also is in charge of the remanufacturing and sales of Caterpillar’s waste equipment. We find that hybrid remanufacturing is better than single agent remanufacturing in one-period settings. Meanwhile, considering the recycling rate as a capacity constraint in two-period settings, the manufacturer chooses the option of joint remanufacturing with the third party, which generates a higher recycling rate and profits.

2. Literature review WTP is an important topic in manufacturing (Marques et al., 2016), and there are numerous empirical studies in the CLSC literature that investigate how much people would be willing to pay for different types of products (Atasu et al., 2008a; Ovchinnikov, 2011; Subramanian et al., 2013; Ovchinnikov, et al., 2014; Agrawal et al., 2015a,b; Neto et al., 2016; Xu et al., 2017). Taking Dell laptop computers as the object of research, Ovchinnikov (2011) pointed out that there is obvious differentiation in the price of new products and remanufactured products. Subramanian and Subramanyam (2012) investigated the key driver of differentiated prices between new and remanufactured products, and analyzed data of 5000 samples from the shopping website eBay. Agrawal et al. (2015) distinguished between OEM-remanufactured and thirdparty remanufactured products and conducted experiments to evaluate the impact of remanufactured products on new products from OEMs. Ovchinnikov et al. (2014) showed that discounts for remanufactured products typically range from 10% to 95% below the price of an identical new product. Xu et al. (2017) provided a comprehensive view on customer perceptions of various product conditions (i.e., new, manufacturerremanufactured, seller-remanufactured, and used products) in both auctions and fixed-price transactions in online markets. Theoretical approach models have studied mainly competition in recycling or remanufacturing considering WTP heterogeneity (Debo et al., 2005; Ferrer and Swaminathan, 2006; Atasu et al., 2008b; Chang et al., 2017). Agrawal et al. (2015) summarized the remanufacturing network models to solve strategic problems when manufacturing a range of products. Many scholars have constructed single-period models to solve recycling and remanufacturing problems. Hong and Yeh (2012) proposed a retailer collection model whereby the retailer collects end-oflife products and the manufacturer cooperates with a third-party firm to handle used products. Huang et al. (2013) investigated optimal strategies of a CLSC in which the retailer and third party competitively collect used products. Örsdemir (2014) studied manufacturers’ strategies when faced with a competitive third-party remanufacturer. Liu and Liu (2017) established a differential pricing model of new products and remanufactured products by either the manufacturer or third parties. Huang and Wang (2017) studied a CLSC model of product recycling and mixed remanufacturing under patent license. Kleber et al. (2018)considered quality choice and remanufacturing for both monopoly and competitive cases and compared its solution under constant WTP for remanufactured products with a solution that assumes a probability distribution of this WTP. Overall, the authors found remarkable consistency between the results of the constant and variable WTP models. Other scholars have constructed two-period models to study remanufacturing strategies (Xiong et al., 2011; Bagchi and Mukherjee, 2014; De Giovanni and Zaccour, 2014; Zhu et al., 2015; Liu et al., 2018). De Giovanni and Zaccour (2014) considered a two-period CLSC game to decide whether to manage the end-of-use product collection exclusively or to outsource it to either a retailer or a third party. Zhu et al. (2015)

3. Remanufacturing scenarios in one period Based on heterogeneity in consumers’ WTP for new and remanufactured products, we construct hybrid theoretical models of CLSCs1, adopt a linear demand function2, and then investigate some strategic problems. In this study, the products that are recycled and 1 Most CLSC studies have built theoretical models to solve remanufacturing production strategies (Savaskan and Wassenhove, 2004; Ferrer and Swaminathan, 2006; Bulmus et al., 2014). Single-period models were used in Atasu and Souza (2013) and Subramanian et al. (2013) in the sustainable operations management literature (Örsdemir, 2014). 2 A linear demand function is widely used in the CLSC literature (e.g., Guide et al., 2003; Debo et al., 2005; Ferguson and Toktay, 2010; Bulmus et al., 2014; Hong et al., 2017).

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remanufactured are durable goods. The manufacturer charges the distributor or third-party patent licensing fees for remanufacturing activities. Patent licensing is widely used as a strategy in the remanufacturing supply chain with regard to manufacturers’ brands (Xiong et al., 2011; Bagchi and Mukherjee, 2014; Hong et al., 2017). In this study, the Stackelberg game method is used to solve the theoretical models3 (Savaskan and Wassenhove, 2004; Bulmus et al., 2014) and the manufacturer is the game leader for producing new products and granting the remanufacturing patent license right. This study discusses the optimal remanufacturing production decisions from the perspective of the manufacturer. The decision sequence of the game is as follow: First, the manufacturer sets a license fee, and then the distributor (or the third party) determines whether to accept a contract from the manufacturer at the proposed fee. Finally, the manufacturer and distributor (or the third party) decide their production prices, quantities, and used product recycling rate simultaneously. We summarize the parameters in Table 1. This study involved the following four hybrid remanufacturing models: (a) Mr mode, in which only the original manufacturer produces remanufactured products (Ferrer et al., 2006); (b) Rr mode, in which only the distributor produces remanufactured products (Xiong et al., 2011); (c) MrRr mode, in which both the manufacturer and the distributor produce remanufactured products (Majumder and Groenevelt, 2010); and (d) MrTr mode, in which both the manufacturer and the third party produce remanufactured products (Huang and Wang, 2017a,b). See Fig. 14 . Consumers’ utility from buying new products produced by the manufacturer is Un = v pn ; consumers’ utility from buying remanufactured products from the manufacturer is Ud = v wd ; and consumers’ utility from buying remanufactured products from distributors is Ur = v pr . We assume 0 < < < 1, that is, consumers are more willing to buy remanufactured products made by the manufacturer. When v˜[0,1] (Atasu et al., 2008b), cr , cn, cd (0, 1) , and cr < cd < cn , which means that the cost of new products is higher than that of products remanufactured by the manufacturer and higher than that of products remanufactured by the distributor (Atasu et al., 2008b; Wei and Zhao, 2015; Huang et al., 2017). The conditions under which consumers buy new products is Un > 0 and Un > Ud, Un > Ur ; the condition under which consumers buy remanufactured products made by the original manufacturer is Ud > 0 andUd > Un, Ud > Ur ; and the conditions under which consumers buy remanufactured products from distributors is Ur > 0 and Ur > Un, Ur > Ud . The corresponding demand relationship p Mr

p Mr

w Mr

Table 1 Parameters setup. Notations

Decision variables

pnj Sales price of new products

pnRr

prRr

1

, qrRr =

pnRr

(1

prRr )

lationship in MrRr mode is as follows:

qdMrRr =

pnMrRr

wdMrRr

wdMrRr

1

prMrRr

, qrMrRr =

wdMrRr (

=1 prMrRr )

1

wdMrRr

Mn M

= (wnMn

cn) qnMn

Wholesale price of new products

Licensing fee charged by the manufacturer for licensing distributors to remanufacture Model parameters cn Production cost of new products cr Cost of products remanufactured by distributors cd Cost of products remanufactured by the manufacturer Consumers’ WTP for products remanufactured by the manufacturer Consumers’ WTP for products remanufactured by the distributor Other notations Un Consumers’ utility of buying new products Ud Consumers’ utility of buying remanufactured products from the original manufacturer Ur Consumers’ utility of buying remanufactured products from distributors Each consumer’s willingness to pay for new products j Profits function of joint enterprises i in the remanufacturing supply i chain under mode j , parametersi {M , R, T }, M is the manufacturer, R is the distributor, T is the remanufacturer. parameters j {Mr , Rr , MrRr , MrTr } refers to the four remanufacturing modes

max Mn

pn

Mn R

= (pnMn

wnMn) qnMn

(2)

Respectively.According to backward induction, we draw the fol2 2 1 c lowing conclusions: qnMn = 4 n , MMn = (1 cn) , and RMn = (1 cn) . 8

16

3.2. Single-agent remanufacturing models 3.2.1. Manufacturer remanufacturing—Mr Mode In this mode, the manufacturer sells new products through the distributor, and the manufacturer produces and sells remanufactured products by itself. This way, the new products and remanufactured products made by the manufacturer coexist in the market. The profit functions of the manufacturer and the distributor are

max

wnMr, wdMr

Mr M

= (wnMr

cn ) qnMr + (wdMr

cd ) qdMr

(3)

and

,

max Mr

pn

.

Mr R

= (pnMr

wnMr ) qnMr

(4)

respectively. Proposition 1. The optimal strategy quantities and manufacturer’s profits

In this mode, the manufacturer produces only new products, and sells new products through the distributor. The profit functions of the manufacturer and distributor are wn

Sales quantities under the mode of manufacturer remanufacturing

wnj fj

3.1. No remanufacturing—Mn Mode

max Mn

Sales quantities under the mode of distributor remanufacturing

qdj

w Mr

pnMrRr

Sales quantities of new products

qrj

. The corresponding demand re-

qnMrRr

Sales price under the mode of distributor remanufacturing

prj qnj

n d , qdMr = n (1 d) . The in Mr mode is as follows: qnMr = 1 1 corresponding demand relationship in Rr mode is as follows:

qnRr = 1

Definitions

are

qnMr =

1

4(1 (

cn + cd , )

qdMr =

2) cd2 + 2 (1 + cn

+ cn + cd 4 (1

)c +

( 2

2 c

2

2cd )

cn 2

and

Mr M ,

1)

d n = 8 (1 ) respectively. The sales quantities of the two products are nonnegative, and the production cost of the products must fulfill the (c + 1 ) following relationship: cn 1 + < cd < n2 .

(1)

Corollary 1. In Mr mode, the impact of consumers’ WTP ratio of quantities and profits is qnMr / < 0, qdMr / > 0, MMr / > 0.

and

Corollary 1 indicates that when consumers’ WTP ratio increases, theyperceive greater substitutability between remanufactured products and new products, which drives an increase in the quantity of remanufactured products and a decrease in the quantity of new products. When the consumers’ WTP ratio increases, the revenue from the

3

The Stackelberg game is a strategic game in economics in which the leader firm moves first and then the follower firms move sequentially; the firms compete on quantity. 4 In Fig. 1, the solid lines represent new products and the dotted lines remanufactured products. 82

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X. Long, et al.

Fig. 1. Remanufacturing modes.

increase of remanufacturing quantity is greater than the loss after the reduction of the new product quantity, so that the revenue of the manufacturer increases as consumers’ WTP ratio rises.

+ cr cn ) > cn cr , the demand for new products exWhen (1 ceeds that for remanufactured products. 3.3. Multi-agent (hybrid) remanufacturing modes

Corollary 2. When cn < cd , the quantity relationship between new and remanufactured products is qnMr > qdMr .

3.3.1. Distributor remanufacturing—Rr Mode When the manufacturer produces new and remanufactured products, and the distributor produces remanufactured products after authorization by the manufacturer, then new products from the manufacturer and remanufactured products from both parties emerge in the market. The profit functions of the manufacturer and the distributor are

Corollary 2 indicates that when the number of new products is more than zero, the new products’ price is higher than that of the remanufactured products. However, the low price of remanufactured products does not necessarily trigger higher demand for remanufactured products, and only when cn > cd does the demand for remanufactured products exceed that for new products.

max

3.2.2. Distributor remanufacturing—rr Mode This mode is defined by the manufacturer selling new products through the distributor and the distributor producing and selling the remanufactured products after authorization by the manufacturer. New products produced by the manufacturer and remanufactured products produced by the distributor emerge in the market. The profit functions of the manufacturer and the distributor are Rr M w Rr, f Rr

max n

= (wnRr

cn) qnRr + f Rr qrRr

wnMrRr, wdMrRr, f MrRr

max

Rr R

= (pnRr

wnRr ) qnRr + (prRr

f Rr ) qrRr

2

, qnRr =

cr 2 + 2 (

1

cn + cr

4(1

)

, qrRr =

cr 1) cn + (cn2 8 (1 )

+ 1)

cn

4 (1

cr

qrMrRr = qdMrRr = = the

Corollary 3. In Rr mode, the influence of consumers’ WTP Rr > 0. quantities and profits is： qnRr / < 0, qrRr / > 0, M /

cd

wnMrRr ) qnMrRr + (prMrRr

cr

f MrRr ) qrMrRr

cr

c , f MrRr = 2 r , ) 2 + ) cd (1 + cn ) + cr + 2 ( + cn 4 (1 )( )

4 ( ( 2 ( 2

2 + ) cd 2 8( )

(cd 8(

cn )2 1)

+

cd 2 8

+

cr + 1 cr 2 8

+

)

,

MrRr . M

1 8

To establish this mode, the following relationship should hold for max (cn production cost of the product:

1 + , cr / ) < cd <

+ 1)

= . , RRr = To establish this mode, the production cost of the product needs to fulfill the following relationship: cn 1 + < cr < cn . Rr M

= (pnMrRr

Proposition 3. In MrRr mode, the optimal strategy set of the 1 c +c qnMrRr = 4(1 n ) d , manufacturer and distributor is

(6)

cr 1) cn + (cn2 16 (1 )

(7)

(8)

, and )

cr 2 + 2 (

cd ) qdMrRr

respectively.

Proposition 2. In Rr mode, the optimal strategy set of the manufacturer 3 +c 1+c 3+c wnRr = 2 n , prRr = 4 r , pnRr = 4 n , and distributor is cr

MrRr R

max

pnMrRr , prMrRr

respectively.

f Rr =

cn ) qnMrRr + f MrRr qrMrRr

and

(5)

cr

= (wnMrRr + (wdMrRr

and pnRr , prRr

MrRr M

(1 + cn )

cr

2

2( + c n

2 +

cr + 1

)

.

Corollary 5. In MrRr mode, the impact of consumers’ WTP ratio on quantities and profits is qnMrRr / < 0, qrMrRr / < 0, qdMrRr / > 0 , qrMrRr / > 0, qdMrRr / > 0 .

on

3.3.2. Manufacturer and third-party remanufacturing—MrTr Mode In this mode, the manufacturer sells new products through a distributor, produces and sells the remanufactured products by itself, and authorizes a third-party manufacturer to produce and sell remanufactured products. The profit functions of the manufacturer, the distributor, and the third party are

Corollary 3 shows when consumers’ WTP for remanufactured products increases, the quantity of remanufactured products and the optimal patent licensing fees charged by the manufacturer also increase, while the number of new products decreases. Thus, the revenue of the manufacturer increases as consumers’ WTP increases.

(1 + cr cn ) > cn cr , the quantity Corollary 4. When relationship between new products and remanufactured products is qnRr > qrRr .

max

wnMrTr, wdMrTr, f

MrTr M

= (wnMrTr

cn ) qnMrTr + f MrTr qtMrTr + (wdMrTr

cd ) qdMrTr (9)

Corollary 4 indicates that regardless of how the cost and price discount coefficients change, the distributor sets a higher price for the new product than for the remanufactured product.

max RMrTr MrTr pn 83

=

(pnMrTr

wnMrTr ) qnMrTr

(10)

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X. Long, et al.

and

max TMrTr MrTr pt

=

(ptMrTr

f MrTr ) qtMrTr

ct

highest. Therefore, the best production channel for the manufacturer is when it participates in remanufacturing and authorizes the distributor to sell the remanufactured products (MrRr mode). Mr Rr Mn When the WTP ratio β changes, MMrRr M > M M , the revenues of the manufacturer in Rr mode are higher than those in Mn mode, which means that the manufacturer earns more by authorizing the distributor to undertake remanufacturing. We observe that the profits of the manufacturer in MrRr mode are increasing with WTP ratio β and much higher than those in other modes. Therefore, MrRr mode is beneficial for the manufacturer. See the appendix (Fig. A1). These comparative results of Figs. 2 and A1 indicate that remanufacturing is a favorable choice regardless of whether the main remanufacturer is the manufacturer or the distributor Mn Rr Mn ( MMr M , M M ). The manufacturer should actively participate in remanufacturing even if it knows that the distributor has already undertaken the remanufacturing work ( MMrRr > MRr ) and remanufacturing with the distributor is better than remanufacturing itself ( MMrRr > MMr ). In other words, the manufacturer earns more profits from the remanufactured products through the licensing of the patents, offsetting the negative impact on the remanufacturing of the distributor. The patent licensing fee is critical for the profitability of the manufacturer and the distributor, affecting their decision-making. When consumers’ WTP for remanufactured products increases, the manufacturer can increase the patent licensing fee for remanufactured products, thereby protecting the market for new products ( f MrRr / > 0 ). Conversely, when the remanufacturing cost of the distributor is high, the manufacturer can appropriately reduce the patent licensing fee for remanufactured products to encourage the distributor to continue remanufacturing, which drives the remanufacturing market to some extent ( f MrRr / cr < 0) . The total profit comparison among remanufacturing modes when MrRr Mr > Rr = Mn . parameters and β change: MrRr Mr > Rr Mn . We derive the same results as those of Figs. 2 and A1, which means the MrRr mode is also the best decision of the manufacturer from perspective of total supply chain efficiency.

(11)

respectively. By backward induction, the optimal profits for the manufacturer are MrTr M

=

8

32 (cd

cd 4

ct )(4 + 7cd 64( )

cn 4

9ct )

(cd 8(

(cd

cn)2 1)

ct )2

( ct )2 32(2 )

+

9cd2 64

+

ct 2 . 8

The ana-

1 8

+ + 64( )2 lysis results of the impact of consumers’ WTP ratio on decision variables of MrTr mode are similar to MrRr mode, and are omitted here. 3.4. Comparative analysis of multiple production modes Comparison of the quantities of new products and remanufactured products and the profits of the manufacturer under the abovementioned production models are as follows. Corollary 6. The quantity relationship is qnMr = qnMrRr < qnRr , qdMrRr < qdMr ; and the manufacturer profit relationship is Mn Rr Mr MrRr . M M < M M This subsection compares the results of the remanufacturing scenarios outlined in the previous subsections using a numerical method (Wei and Zhao, 2015) and shows that consumers’ WTP ratio for new and remanufactured products affects the manufacturer’s profits. The parameters are set as follows. According to the rules of parameters set by Xiong et al. (2013), assume that cn = 0.5, cd = 0.4, cr = 0.3. According to the analyses of Propositions 1, 2, and 3, we know that when = 0.8, the scope of has to be 0.6 < < 0.8; and when = 0.6 , the scope of has to be 0.67 < < 0.8. Under the condition that must be in the range of 0.67 < < 0.8 when β = 0.6, a comparison of the profits of the manufacturer in Mr, Rr, MrRr, and Mn modes is shown in Fig. 2. Mr Rr Mn Fig. 2 shows that MMrRr M > M = M . Compared with Mn mode, when WTP ratio changes, the manufacturer in Mr mode (or MrRr mode) can earn more profit by producing and selling remanufactured products, which means that remanufacturing is always good for the manufacturer. This result is in accordance with Mitra (2016), who developed theoretical models for single-period and twoperiodCLSCs, and showed remanufacturing is almost always more profitable than not remanufacturing. Moreover, in MrRr mode, as increases, the profits of the manufacturer first decrease and then increase, which shows that higher WTP for remanufactured products leads them to displace the market share of new products, and at a certain threshold of WTP increase manufacturers can obtain more benefits from the remanufactured products than from the new products. In MrRr mode, the revenues of the manufacturer are

3.5. Numerical analysis of MrRr Mode and MrTr Mode Liu and Liu (2017) concluded that MrTr mode is more beneficial for expanding the total market share and increasing the total profits of the manufacturer and the CLSC than either the Mn or Mr mode. Therefore, we compare only the MrTr and MrRr modes in Figs. 3 and A2:when ct > cr , the profits of the manufacturer and the whole supply chain are higher in MrRr mode. In other words, it is better for the manufacturer to engage in remanufacturing with the distributor than that with the third party. However, when ct < cr , the revenue of the manufacturer and the total revenue of the supply chain are higher in MrTr mode. In that case, the manufacturer prefers to cooperate with a third-party manufacturer, jointly producing and selling remanufactured products. Therefore, manufacturers earn more profits by remanufacturing products and selling them directly. When the remanufacturing cost for distributors is low, regardless of the manufacturer’s mode of choice, the mode of remanufacturing with the manufacturer and the distributor (MrRr mode) is best for the manufacturer, even if a third party is introduced to participate in remanufacturing (MrTr mode); this also holds from the perspective of total supply chain efficiency ( TMrRr > TMrTr ). Otherwise, MrTr mode is the best choice among these remanufacturing production strategies. Therefore, the manufacturer chooses its remanufacturing partner based on the lowest cost of remanufacturing. When the WTP ratio β changes, we compare the profits in MrTr mode with those in MrRr mode. The main results are consistent with the results of the changes in parameter . We do not elaborate on them here to save space.

Fig. 2. Profit comparison among remanufacturing modes and Mn mode when WTP ratio changes. 84

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4.3. Rr Mode considering the recycling rate In this case, the distributor collects used products and produces remanufactured products, and the manufacturer produces new products.The manufacturer’s and the distributor’s profits can be stated as

max

w 2n, f

max

q2n, q2r ,

Rr 2M

= (w2n

Rr 2R

= (p2n

cn ) q2n + fq2r

(14)

w2n) q2n + (p2r

cn +

f ) q2r

C

2

(15) respec-

tively, s.t q1n q2r . We derive the optimal strategies in Rr mode in the appendix (proposition A2). 4.4. MrRr Mode considering the recycling rate In this case, the manufacturer collects part of used products and produces new and remanufactured products. The distributor collects the other part of used products and produces remanufactured products. The manufacturer’s and the distributor’s profits can be stated as

Fig. 3. Profit comparison between MrTr mode and MrRr mode when Ct = 0.2.

4. Remanufacturing scenarios in two periods

max

w 2n, f

On the basis of the model described in Section 3, we construct twoperiod models taking into account the recycling rate and capacity, and the parameters are presented in appendix (Table A1). There are only new products produced in period one, and the manufacturer, distributor, or third party can collect used products and produce remanufactured products in period two. Following Savaskan and Wassenhove (2004), the used product recycling rate is a function of the effective collection investment: = I / C . Following Ferguson and Toktay (2010), we adopt the linear inverse demand functions: p1n = Q q1n for period one, and p2n = Q q2n q2r , p2r = (Q q2n q2r ) for period two. In our models, we assume that consumers have higher WTP for remanufactured products produced by the manufacturer, consistent with Shi et al. (2011); Bulmus et al. (2014); Hong et al. (2017), and many others. We suppose that the new and remanufactured products produced by the manufacturer have the same price, means in the section 3 equals 1, and is the consumers’ WTP for remanufactured products by the distributor (or the thirdparty). The lower WTP for remanufactured products by the distributor (or the thirdparty) is due only to consumers’ perception (Ferguson et al., 2010).

max

q2n, q2r ,

We derive the optimal sales quantities in period one: q1n = Mn 1M

=

(Q

cn )

2

Q

cn 4

= (w2n

cn + ) q2n

max

Mr 2R

= (p2n

w2n ) q2n

q2n

C

2

w2n ) q2n + (p2r

max

MrTr 2M

max

MrTr 2R =(p2n

w2n ) q2n

max

MrTr 2T =(p2r

cn +

w 2n, f

q2n

q2r ,

C (a )2

cn +

f ) q2r

(16)

C (1

a) 2 2

= (w2n

cn + a

m

) q2n + fq2r

C (a ) 2

(18) (19)

f ) q2r

C (1

a)2

2

(20)

respectively, s.t. (1 a) q1n q2r . We derive the optimal strategies in MrTr mode in the appendix (proposition A4). 4.6. Numerical examples

,

This sub-section presents a comparison of the quantities of new products and remanufactured products under the abovementioned production models. As the profit functions of MrRr mode and MrTr mode are complex, it is difficult to compare the profits among hybrid remanufacturing modes, and thus, acomparison is undertaken using numerical analysis (Wei and Zhao, 2015). Let C = 1500 , Q = 100 , cn = 20 , = 15 (the parameters set by Hong et al., 2017), and a = 0.5. The equilibrium solutions and optimal profits in the models are shown in the following figures, indicating how the consumers’ WTP ratio influences the optimal quantities, recycling rate, and profits of the manufacturer. The results easily show that the profits of the remanufacturing modes are higher than those of the non-remanufacturing mode. The results are the same as those presented in Section 3. The Mr mode is not influenced by consumers’ WTP , and thus, we discuss only the hybrid remanufacturing modes when the parameter changes (Rr mode, MrRr mode and MrTr mode). The main results are as

In this case, the manufacturer collects used products and produces new and remanufactured products. The manufacturer’s and the distributor’s profits can be stated as Mr 2M

) q2n + fq2r

In this case, the manufacturer collects part of used products and produces new and remanufactured products. The third party collects the other part of used products and produces remanufactured products. The profits of the manufacturer, distributor, and third party are

8

max

m

4.5. MrTr Mode considering the recycling rate

4.2. Mr Mode considering the recycling rate

w 2n,

MrRr 2R =(p2n

cn + a

(17)

In this case, there are only new products produced by the manufacturer. The profits of the manufacturer and the distributor are w1n) q1n , respectively. max 1Mn cn) q1n and max 1Mn R = (p1n M = (w1n q1n

= (w2n

respectively, s.t. (1 a) q1n q2r We derive the optimal strategies in MrRr mode in the appendix (proposition A3).

4.1. No remanufacturing

w1n

MrRr 2M

(12) (13)

We derive the optimal strategies in Mr mode in the appendix (proposition A1). 85

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X. Long, et al.

Fig. 4. The optimal recycling rate when

MrRr > 2Mr , when 0.28 < < 0.85, 2MrTr M M > 2M ; and when 0.85 < MrTr MrRr Mr Rr > > > . From Fig. 5, we find that there is a 2M 2M 2M 2M threshold of WTP ratio = 0.28. When is below the threshold, Mr mode is the best choice for the manufacturer; when is above the threshold, MrTr mode is the best choice for the manufacturer, and there is a range of WTP ratio in which MrRr mode is better for the manufacturer than Rr mode and Mr mode. Numerical results show that the rank of the optimal quantities of new products and the optimal profits of the manufacturer among hybrid modes are influenced by the WTP ratio . The rank of the optimal quantities of remanufactured products, total quantities, and recycling rate are independent of the WTP ratio . In Rr mode, when the WTP ratio is small, the distributor does not recycle any used products, and the profits of the manufacturer are lowest, mainly because the WTP ratio influences the quantities of the distributor’s remanufactured products. Moreover, the manufacturer obtains less from the remanufactured products than in other modes, while the quantities of the new products decrease with the WTP ratio, and thus, the manufacturer does not authorize the distributor to remanufacture. When the WTP ratio is above the threshold, the manufacturer’s profit is optimal in MrTr mode. Rational manufacturers should choose to recycle used products and remanufacture with the third party. When the WTP ratio is above the threshold, the manufacturer’s profit is optimal in Mr mode, and when the WTP ratio is high enough, the manufacturer’s profit in MrRr mode is higher than in Mr mode. This finding is derived from consumers’ differing perceptions of remanufactured products by different parties. The patent licensing fees for remanufacturing are influenced by f / > 0 in Rr, MrTr, and MrRr modes.This shows that the patent licensing fees invigorate new product markets, stimulate the remanufacturing market, and are vital for the profitability of the manufacturer.

varies.

follows. (1)Variable q2n is monotonically decreasing with in Rr, MrRr, and MrTr modes inthe appendix (Fig. A3); variables q2r , and 2M are in Rr, MrRr, and MrTr modes, see monotonically increasing with Appendix (Fig. A3) and Figs. 4 and 5. Fig. A3 demonstrates that the parameter influences the ranking of the production quantities of the manufacturer in both MrRr mode and Rr mode, but the production quantities of the manufacturer in MrTr are highest of all modes (Fig. A2). (2) The relationship of the total quantities Rr + q2MrTr > q2MrRr +q2MrRr > q2Rr isq2MrTr n r n r n + q2r . From Fig. A4, we know that the total quantities in MrTr mode are larger than in MrRr mode and Rr mode, and therefore, consumer surplus in MrTr mode is larger than in MrRr mode and in Rr mode. When < 0.25 , the distributor does not participate in remanufacturing (q2Rr r < 0 ). In other words, the distributor earns no profits from making remanufactured products when consumers have little interest in buying remanufactured products made by the distributor (small WTP ratio). (3) The relationship of the product recycling rates is MrTr > MrRr > Rr . From Fig. 4, we know that the recycling rate in MrTr mode is highest. In this way, more used products can become inputs for remanufactured products, so as to reduce environmental pollution and maximize social benefits. When < 0.25 , the distributor does not recycle any used products. (4) The relationship of the manufacturer’s profits in period two is as > 2MrRr > 2Rr < 2Mr < 0.28 , 2MrTr follows: 2MrTr M M M for any . When M M;

Fig. 5. The manufacturer’s optimal profits when

5. Conclusions We establish multiple remanufacturing modes in one-period and two-period CLSCs to identify the optimal production decisions of the manufacturer. We observe that the manufacturer should participate in remanufacturing in one-period or two-period settings, which means that the manufacturer can obtain the profits of the distributor and the third party by charging license fees, thereby guaranteeing that both parties earn profits. It is better for the manufacturer to engage in hybrid remanufacturing, with the partner based on lowest cost. Therefore, remanufacturing enterprises should continuously reduce costs to obtain permission for remanufacturing, and this would be conducive to longterm sustainable development. Considering the recycling rate and capacity constraint, the rank of other hybrid remanufacturing modes would depend on the WTP ratio. If the WTP ratio increased above a certain threshold, the manufacturer would choose the third party as its joint recycling partner, resulting in higher profits, higher consumer surplus, and higher recycling rate. If the WTP ratio were high enough, the manufacturer would choose the distributor as the partner to remanufacture.In this scenario, the manufacturer should promote consumers’ awareness of remanufacturing products, as it could reduce the consumption of resources and waste discharge through remanufacturing and generate more profits than inhybrid remanufacturing. The manufacturer would obtain the lowest profits from distributor remanufacturing. These results inform recommendations from the perspective of CLSC cooperative remanufacturing. This study providesthree important new insights: First, manufacturers should participate in remanufacturing, which is inconsistent with the results of many works in the literature and with practice, as manufacturers do not always undertake remanufacturing. Second, hybrid remanufacturing is better for the manufacturer in both one- and two-period CLSCs, as the manufacturer permits the firm to participate in joint remanufacturing based on the remanufacturing cost of the firm in one-period settings. Third, when considering the recycling rate and

varies. 86

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X. Long, et al.

capacity constraint, the manufacturer chooses the third party as the joint recycling partner from the perspective not only of optimal profits but also the recycling rate. However, ourresearch suffers from some limitations. Our conclusions are derived only in theoretical models, not in empirical research, and are not applied to specific remanufacturing industries or products. Moreover, hybrid remanufacturing modes in this study do not include multiple manufacturers competing in remanufacturing and recycling. Future research should consider non-linear demand, uncertain recycling quality, and comparison of different patent licensing contracts

(fixed patent licensing fees and two pricing systems). Furthermore, it should discuss the scenarios in which the distributor (or third party) is the leader and the manufacturer is the follower, and should analyze the hybrid remanufacturing models. Acknowledgments This article is financially supported by the National Natural Science Foundation of China (71771080, 71790593, 71521061, 71221001, 71642006, and 71473155)

Appandix A Proposition A1. In Mr mode, the optimal quantities and the optimal used product recycling rates are given by q2Mr n = respectively.

2CX Mr 2) and (8C

=

X (8C

2) ,

Proposition A2. The optimal strategies in Rr mode are given by

q2Rr n =

X (16C + QXM

X)

4(16C + MX2)

a, Z =

Y=1

X2 Z , 4(16C + MX2 ) 2.

, q2Rr r =

cn + cn , M =

Rr

=

XZ , 4(16C + MX2)

cn + Q 2

f Rr =

,

Rr 2M

=

X2 (QXM + cn ( QM + (1

)(cn

2 )) + 2 + 16C )

4(16C + MX2)

.Where X = Q

cn ,

Proposition A3. In MrRr mode, the optimal quantities and the optimal used product recycling rates are given by X (MQ 2Y 2

2Qa

(

a + cn + cn +

)

3 2

a2)

Qcn M (1

= (A1)q2MrRr n

4(MQ2Y 2 + (a2

2a)(cn

= (A2)q2MrRr r

4(MQ2Y 2 + (a2

2Q) cn M + 2Qa Y 2Qcn M + 2cn X2 Y ( Y (1 ) cn)

(A3)

2a)(cn

4(MQ2Y 2 + (a2

2Q) cn M + 2Qa Y 2Qcn M + 2cn X (Z + acn (1 ))

2a)(cn

MrRr

=

X (MQ 2Y 2

2Qa

(

2Q) cn M + 2Qa Y

a + cn + cn +

)

3 2

q2MrRr = n

4(MQ2Y 2 + (a2

2a)(cn

2Q) cn M + 2Qa Y

q2MrRr = r

4(MQ2Y 2 + (a2

2a)(cn

2Q) cn M + 2Qa Y

4(MQ2Y 2 + (a2

2a)(cn

2Q) cn M + 2Qa Y

MrRr

=

X2 Y (

where H =

2Qcn M + 2cn

Y (1

) cn) 2Qcn M + 2cn

X (Z + acn (1

a Y +24Ca2 + cn2M + H )

a Y +24Ca2 + cn 2M + H )

2Qcn M + 2cn a2)

Qcn M (1

(cn

Q + cn a2) + H )

(cn

a Y +24Ca2 + cn2M + H )

Q + cn a2) + H )

a Y +24Ca2 + cn2M + H )

(A1)

a Y +24Ca2 + cn2M + H )

(A2)

a Y +24Ca2 + cn 2M + H )

(A3)

))

2Qcn M + 2cn

32Ca + 16C .

a2 2

Proposition A4. In MrTr mode, the optimal quantities and the optimal used product recycling rates are given by

= (A4) q2MrTr n

= (A5)q2MrTr r (A6)

q2MrTr n

=

q2MrTr = r MrTr

=

X ( L (4Q 2

3Q 2 2 + 4Q 2) + 8Qa (cn

Q + ) + 6Q (a2

+ a2cn + Qa

8(N (Q + cn )(a + 1)2 + cn 2N (a2 + 2a 1) 2H + 48ca2 + 2 (a2 cn X2Y 2 (2cn 2 Q 2acn cn + Qa + acn )

cn ) + P )

Qa + Q

cn ))

4(N (Q + cn )(a + 1)2 + cn 2N (a2 + 2a 1) 2H + 48ca2 + 2 (a2 cn Qa + Q cn)) X (2 2cn + Q + 2acn + cn Qa acn ) MrTr = N (Q + cn )(a + 1)2 + cn2N (a2 + 2a 1) 2H + 48ca2 + 2 (a2 cn Qa + Q cn ) X ( L (4Q 2 3Q 2 2 + 4Q 2) + 8Qa (cn Q + ) + 6Q (a2 + a2cn + Qa cn ) + P ) 8(N (Q + cn )(a + 1)2 + cn 2N (a2 + 2a 1) 2H + 48ca2 + 2 (a2 cn Qa + Q cn )) X2Y 2 (2cn

2

Q

4(N (Q + cn )(a + 1)2 + cn 2N (a2 + 2a X (2

where N = 2

P=

cn + Qa + acn )

2H + 48ca2 + 2

2cn + Q + 2acn + cn

N (Q + cn )(a + 1)2 + cn2N (a2 + 2a

2,

2acn 1)

(a2

1)

+ 1) cn

Qa

2H + 48ca2 + 2

2M

+

(A4)

4a2

(cn

(a2 cn

Qa + Q

(A5)

cn))

acn )

(a2 cn

Qa + Q

(A6)

cn )

) + 4 acn ( +

+ 1)

128aC + 64C + 2 cn (

2acn) +

96Ca2

+ 2acn (cn + a) .

Fig. A1. Profit comparison among remanufacturing modes and Mn mode when WTP ratio β changes. 87

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Fig. A2. Profit comparison between MrTr mode and MrRr mode when Ct = 0.35.

Fig. A3. The optimal quantities when

varies.

Fig. A4. The total quantities of the supply chain when

88

varies.

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X. Long, et al.

Table A1 Parameters setup. Symbol description Decision variables

pnl prl qnl qr2 wnl Model parameters

Q C a Other notations I j 2i

i j

Sales price of new products in periodl (for l = 1, 2 ) Sales price of remanufactured products in period l (for l = 1, 2 ) Sales quantities of new products in period l (for l = 1, 2 ) Sales quantities of remanufactured products in period two Wholesale price of new products in period l (for l = 1, 2 ) Used products’ recycle rate in period two Unit cost savings for the manufacturer through remanufacturing Potential market size Scaling parameter the ratio of manufacturer’s recycling used products in period one Used product collection investment of the manufacturer/distributor /remanufacturer Profits function of joint enterprises i in the remanufacturing supply chain under mode j in period two parametersi {M , R}, M is the manufacturer, R is the distributor parameter j {Mr , Rr , MrRr , MrTr } refers to the four remanufacturing modes

We omit the optimal license fee and the profits of the manufacturer in MrRr mode and MrTr mode here owing to their complex expression. .

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