Effects of asymmetric cost information on collection outsourcing of used products for remanufacturing

Abstract

Due to environmental and economic benefits from remanufacturing as well as an existing or potential take-back regulation, a manufacturer often implements remanufacturing, but it often delegates a third-party (3P) to collect used products. However, the collection efficiency is the 3P’s private information while the prior distribution of the 3P’s collection efficiency is possessed by the manufacturer. To maximize its expected profit, the manufacturer can design nonlinear pricing contracts to stimulate the 3P to select one that corresponds to its true type, where the nonlinear pricing contracts consist of the wholesale price and the collecting quantity. Specifically, our modeling analysis reveals that asymmetric information can result in the downward distortion of quantities collected by the 3P with low collection efficiency, whereas the quantities collected by the 3P with high collection efficiency remain unchanged. Besides, faced with information asymmetry and collection outsourcing, the manufacturer may also bring the new product quantity down if the 3P has low collection efficiency. Moreover, the take-back regulation will indirectly reduce consumer surplus, and this negative effect will be amplified by asymmetric information.