Impact of product design on remanufacturing under environmental legislation

Abstract

Facing take-back and carbon tax legislation, the original equipment manufacturer (OEM) is proactively engaged in product design to enhance the recyclability and reusability of products and cut carbon emissions. This paper uses stylized models with a monopoly OEM and provides four legislative scenarios to analyze fundamental conflicts of interest in remanufacturing and product design. Unlike previous literature, we consider remanufacturing and product design as two operating strategies simultaneously and investigate the OEM’s production and collection decisions in the hybrid legislative structure. The optimal strategies are characterized by using Karush–Kuhn–Tucker (KKT) conditions. Our results show that high product design levels do not imply more remanufacturing. Remanufacturing indeed benefits from low tax rates, take-back legislation, and high-cost savings for remanufactured products, but there are some potential unintended consequences when the mandatory target becomes stringent. Then, through a numerical study, we analyze and compare different legislative structures from stakeholder perspectives. Surprisingly, our numerical result observes that take-back legislation with reuse targets maximizes the benefits for both the OEM and policy maker under certain conditions, suggesting that the reuse target can be a perfect substitute for the collection target that is the dominant form in take-back legislation worldwide. Finally, we extend the model to the competitive environment, and we find that the invasion of an independent remanufacturer will cause a significant drop in profits for the OEM since the double cannibalization effect.