Decision Making in a Closed-Loop Supply Chain with a Waste Management Program: Manufacturers’ Take-Back Activity and Governmental Subsidies for Remanufacturing

Abstract

As awareness of climate change increases, diverse initiatives such as subsidies for remanufactured products and take-back programs for end-of-life products have been taken to conserve energies and materials. This paper explores how the subsidy program affects manufacturer’s take-back activity in a closed-loop supply chain and also analyzes how a coalition between a retailer and a remanufacturer affects the equilibrium decisions. Major findings of this paper reveal that (i) when a take-back program is implemented, the government imposes a high penalty on products that are not collected, thereby encouraging manufacturers to collect more used products, (ii) implementing a take-back program in conjunction with a subsidy program results in a greater reduction in environmentally negative impacts and an enhanced social welfare compared to implementing them separately, and (iii) a coalition between a retailer and a remanufacturer results in lowering the penalty imposed to a manufacturer, which leads to lowering the quantity of the collected and remanufactured products.