Collect to resell: a profitable strategy for green electronic product manufacturers

Abstract

This thesis models and analyzes a closed loop supply chain for electronic products such as cell phones. In this supply chain, there exists an original equipment manufacturer (OEM) who sells new products and collects used products. Also there exists a reseller who procures the used products from the OEM. The reseller refurbishes these used products and then resells them as refurbished products. Besides reselling, the OEM is assumed to have an option to sell the used products to recyclers for recycling. In the thesis, we model this as a two-period Stackelberg game with the OEM as the leader and the reseller as the follower (OEM-Reseller model). We then compare this model with the centrally coordinated model. We solve equilibrium prices, production quantities as well as profits using backwards induction in both OEM-Reseller model and centrally coordinated model. Managerial insights are derived from numerical analysis. We show that under some conditions, OEM’s profit from reselling refurbished products exceeds the loss of profit due to reduced new products sales from the competition of refurbished products. That is to say, selling the collected used products to the reseller can be a profitable strategy for the OEM.