Coordinating economic incentives, customer service and pricing decisions in a competitive closed-loop supply chain

Abstract

This study contributes to the closed-loop supply chain (CLSC) literature by investigating: (a) a new function for supply of used products based on the service competition between two dealers and (b) manufacturer’s economic incentives to the dealers so as to persuade them to return the collected products. In order to achieve the optimal values of CLSC members’ decisions on pricing, economic incentives, and the level of customer service, both traditional and centralized decision-making structures are investigated. Eventually, a new expense-sharing contract is developed to achieve coordination in the proposed CLSC. Results of implementing the proposed model indicate that coordinating a CLSC under a competitive situation significantly improves the economic performance of the whole CLSC. Moreover, the expense-sharing contract is beneficial for the proposed CLSC from social viewpoint, since the dealers can provide better qualified services and more customers will be satisfied. Consequently, more used products are returned to the manufacturer, which in turn improves the environmental performance of the investigated CLSC.