Channel structure and pricing in a dual-channel closed-loop supply chain with government subsidy

Abstract

This paper considers a dual-channel closed-loop supply chain (CLSC) where a manufacturer can distribute new products through an independent retailer and sell remanufactured products via a third-party firm or platform (3P) in the presence of possible government subsidy. The two main themes of this research are to explore channel structure and pricing decisions for the manufacturer and government's subsidy policy with competing new and remanufactured products. Three possible channel structures for manufacturer are investigated: (1) no direct sales (Structure D); (2) selling new products directly but distributing remanufactured products through the 3P (Structure MN); (3) selling remanufactured products directly but distributing new products via the retailer (Structure MR). We derive the manufacturer's optimal channel structure and pricing decisions, and government's optimal subsidy level under these three channel structures. We find that government can encourage the manufacturer to adopt desired channel structures by setting appropriate subsidy levels. Furthermore, higher subsidy level always benefits consumers and the whole supply chain, but not always so to the environment. Moreover, when government aims to minimize the environmental impact and subsidy expenditure, the manufacturer and government have different channel structure preferences when the cost saving from remanufacturing is very low or high. However, under a moderate cost saving, they have identical channel structure preference: both prefer Structure MN when the environmental impact discount is relatively high; otherwise, both prefer Structure MR.