Interaction between manufacturer’s recycling strategy and e-commerce platform’s extended warranty service

Abstract

E-commerce platforms provide extended warranty service (EW) to achieve high profitability. Manufacturers need to distinguish whether consumers have purchased extended warranty services when recycling products. We establish a closed-loop supply chain model with extended warranty service. Three recycling pricing strategies of the manufacturer are discussed: a low recycling price only attracts consumers who do not purchase EW, a high recycling price attracts two types of consumers or discriminatory recycling prices for both types of consumers. The results show that discriminated pricing can attract consumers to participate in product recycling, improving product recycling quantity and saving manufacturing costs. The high recycling price is applicable when the base warranty period is short, and the residual value of the old products is low. The manufacturer and the e-commerce platform can both benefit from the three recycling strategies as compared to non-recycling. Manufacturer’s recycling can increase the price and demand of products, and the proportion of consumers purchasing EW is reduced. We also found that the e-commerce platform will not provide EW when the manufacturer’s base warranty duration is long.