Cooperation or Competition? Channel Choice for a Remanufacturing Fashion Supply Chain with Government Subsidy

Abstract

In this paper, we address the problem of choosing an appropriate channel for the marketing channel structure of remanufactured fashion products. To be specific, we consider a remanufacturer who has two options for selling the products: (1) provide the remanufactured products to a manufacturer, then the manufacturer sells both new products and the remanufactured products to customers, and (2) sell the remanufactured products directly to customers. Because of the relatively low acceptance of remanufactured products and environment consciousness of customers in developing countries like China, we model the two scenarios as decentralized remanufacturing supply chains, with the manufacturer being the Stackelberg leader and the government offering subsidy to the remanufacturer to incentivize remanufacturing activities. We find that the subsidy can incentivize remanufacturing activity regardless of the remanufacturer’s channel choice. A “too high” or “too low” subsidy makes the remanufacturer compete with the manufacturer, and an intermediate subsidy results in cooperation between the two members of the remanufacturing supply chain. Meanwhile, if the customers’ acceptance for remanufactured products is higher, the remanufacturer will be more likely to compete with the manufacturer. However, the remanufacturer’s optimal channel choice may be inefficient in the sense of social welfare and environmental protection.