Differentiation competition between new and remanufactured products considering third-party remanufacturing

Abstract

In general, customers may perceive that qualities and reliabilities of new and remanufactured products are different, so the activities of taking back and remanufacturing used products by OEMs (Original Equipment Manufacturers) have a negative effect on themselves. Thus, these activities are executed by third-party remanufacturers, but which will lead to the competition between the new and remanufactured products. However, the customers' points to new and remanufactured products are different. For example, customers who are interested in the new product are mainly sensitive to the price, whereas those who prefer the remanufactured product are more sensitive to the quality and reliability. Based on the idea, a differentiation competition between the new and remanufactured products is considered in this paper. We consider the decentralized decisions framework with one manufacturer, one remanufacturer, and one retailer. In this framework, the manufacturer decides the wholesale price of new products, and the remanufacturer determines the warranty period of remanufactured products, and they sell their products to the retailer who decides the retail prices of two products. We provide the properties of the equilibrium decisions, and investigate the effects of parameters on the equilibrium decisions by using theoretical and numerical methods.