Effects of Online Consumer Reviews on a Dual-Channel Closed-Loop Supply Chain With Trade-In

Abstract

To study the effects of online consumer reviews (OCRs) on a dual-channel closed-loop supply chain and the manufacturer's trade-in authorization strategy, we construct four Stackelberg game models with or without OCRs under two scenarios, i.e., whether the retailer is authorized to determine the retail channels trade-in rebate or not. Results show that under both scenarios, incorporating OCRs will increase the overall prices as well as the profits of the manufacturer and the total supply chain only when the OCRs are sufficiently positive, which is always harmful to the retailer. Authorization of the retailer to trade-in will increase the retailer's profit. When the quality belief reflected by OCRs is increasing, it becomes more harmful for the manufacturer to authorize the retailer to trade-in: when OCRs are not available, the manufacturer can benefit from authorizing the retailer to trade-in; when OCRs are available and lower than certain thresholds, authorization of the retailer to trade-in can benefit the manufacturer; and when OCRs are sufficiently positive, it is more profitable for the manufacturer not to authorize the retailer to trade-in. Furthermore, two extended models considering channel-heterogeneous and consumer-heterogeneous OCRs are investigated, and it is found that the main conclusions still hold. These research findings could facilitate managers' decisions on hosting a consumer review system and authorizing the retailer to trade-in.