Firms’ cooperation on recycling investments in a three-echelon reverse supply chain

Abstract

Design-for-recycling and recycling technology choices are significant to improve the environmental and economic benefits of recycling systems. Consider a three-echelon reverse supply chain consisting of one collector, one producer, and one recycler, wherein the collector collects used products from consumers, and the producer and recycler invest in design-for-recycling and recycling technology, respectively. Using stylized game-theoretic methods, we investigate firms’ cooperation behavior regarding recycling investment. With non-cooperative mode as the benchmark, we discuss four cooperative modes: Collector–Producer cooperation mode (Mode CP), Collector–Recycler cooperation mode (Mode CR), Producer–Recycler cooperation mode (Mode PR), and Integrated mode (Mode I). We find that cooperation improves the optimal design-for-recycling level, recycling technology level, and collection quantities, and cooperation always benefits the chain and the collector but may be detrimental to the producer or recycler. We also analyze cooperation mode preferences from the perspective of the chain and each firm and find that Mode I is always optimal for the chain and the collector; Modes CR, PR, or I can be the producer’s favorable mode, depending on the recycler’s recycling investment efficiency; Modes CP, PR, or I can be the recycler’s best mode, contingent on the producer’s recycling investment efficiency. Additionally, counter-intuitive results are found that under cooperative modes the profit of the producer or recycler may decline with the enhancement of their recycling investment efficiency, rather than always increasing as it does under the non-cooperative mode. Finally, we extend our model and uncover that the main derived conclusion remains true.