Closed-loop supply chains under reward-penalty mechanism: Retailer collection and asymmetric information

Abstract

Being motivated by the issue of waste electrical and electronic equipment (WEEE) collection, we consider a contract design problem for a manufacturer with entrusting the collection of WEEE to a retailer. However, the manufacturer has asymmetric information on the collection effort level of the retailer. This paper designs an information screening contract for the manufacturer to obtain the information of collection effort level, and the optimal decision-making with several properties of contract parameters are derived. The results indicate that the manufacturer would offer lower wholesale price and higher buy-back price for the H-type retailer while charge more franchise fee to the H-type retailer. Considering the government intervention, reward-penalty mechanism (RPM) is developed to stimulate the asymmetric information closed-loop supply chain (CLSC). We also analyze the impacts of RPM by comparing the cases whether or not RPM is implemented. The comparison results show that the RPM can lower the wholesale price and retail price meanwhile raise buy-back price and collection quantity. Finally, several numerical studies are conducted for more managerial insights.