Advertisement vs. Monetary Subsidy: Which is Better for Remanufacturing?

Abstract

The government subsidy plays an important role in the recycling and remanufacturing process of a closed-loop supply chain. This paper focuses on the impacts of different patterns of government subsidy on the chain members’ profits and the environment. Furthermore, we develop three models in a supply chain including a manufacturer, a retailer and a collector, namely (1) the government invests public service advertisement to stimulate the remanufacturing process (Model AS); (2) the government offers only monetary subsidy to the collector (Model MS); (3) the government allocates the subsidy into two parts, namely both advertisement and monetary subsidy (Model HS). We find that, no matter which subsidy pattern the government adopts, both the manufacturer and the collector are beneficiaries of the government subsidy, and that such subsidizing activity is definitely conducive to the environmental sustainability. Taking into account the chain members’ profits and the environmental impact, the optimal hybrid subsidy scheme (Model HS) is more beneficial than that in both Model MS and Model AS, which can be attributed to the combination of the incentives provided by the public service advertisement and the price attraction by the monetary subsidy. We also find that, for single advertisement and monetary subsidy, the amount of government subsidy will decide their merits and demerits. The direct monetary subsidy in Model MS will have a greater influence regarding to the supply quantity of used products than the mere advertisement subsidy in Model AS when the subsidy is relatively large.