Implications of Refurbishing Authorization Strategy and Distribution Channel Choice in a Closed-Loop Supply Chain

Abstract

This study examines the optimal authorization strategy for an original equipment manufacturer (OEM), the optimal distribution channel choice for a platform, and their interactions. We developed four models based on the OEM’s two strategy choices — authorization and non-authorization strategies, and the platform having two distribution channels for refurbished products: reselling and agency selling channels. Our results indicate that the authorization strategy is optimal for the OEM when consumer’s preference for refurbished products is not sufficiently high. Unlike conventional research, an increase in the production cost of a new product leads to different choices for the OEM. Specifically, the OEM prefers a non-authorization strategy in the reselling channel and an authorization strategy in the agency selling channel. Moreover, under the OEM’s authorization strategy, the platform always adopts a reselling channel for refurbished products. However, under the OEM’s non-authorization strategy, the platform’s choice is determined by the commission fee and the production cost of the new product.