Dual-recycling channel reverse supply chain design of recycling platforms under acquisition price competition

Abstract

The rapid development of information and communication technology has enabled companies establishing recycling platforms to purchase used products from end-consumers using the combination of an online collection with the Internet and a conventional offline channel, usually termed a dual-recycling channel reverse supply chain. By constructing a game-theoretic model, this paper explores which of the following three collection channels each of two recycling companies under acquisition price competition should use to purchase products: (i) an indirect offline channel only; (ii) a direct online channel only; or (iii) both channels. We assume that consumers perceive differentiation between the online and offline channels, but not between the recycling companies to which they sell the products. We first show that the following combinations of channel choices arise in equilibrium: (i) both recycling companies use both online and offline channels, and (ii) one recycling company uses only the online channel whereas the other recycling company uses only the offline channel. Based on this equilibrium result, we provide the central finding that the profits resulting from the first (symmetric channel) equilibrium are always Pareto-dominated by the second (asymmetric channel) equilibrium, implying that the dual-channel choice of collecting products via both offline and online channels will lead to the typical prisoners' dilemma. Consequently, the conventional result that a recycling company should employ both online and offline collection channels in a dual-recycling channel reverse supply chain is completely reversed when considering competition between recycling companies, some of which exit real-world recycling markets owing to excessively fierce collection competition.