Optimal pricing and production decisions for trade-old-for-new and trade-old-for-remanufactured with cap-and-trade mechanism

Abstract

Trade-in program can promote the sale of new products, while realize the recycling of waste products. This paper aims to study the optimal pricing and production decisions under different trade-in programs, and explores the impacts of cap-and-trade on the decisions. We propose two-period models, in which “trade-old-for-new” (TON) program is offered only, and “trade-old-for-remanufactured” (TOR) program is offered simultaneously, respectively. We use profit-maximization model to investigate the optimal decisions of the manufacturer. Then, we compare the optimal production decisions, and investigate the impacts of carbon related parameters. It is found that the firm's optimal strategies depend on the receptivity of remanufactured products and product durability. Carbon price and emission intensity of remanufactured products have a great influence on decisions of trade-in programs. The firm can achieve economic benefits when offering TOR and TON programs simultaneously rather than only providing TON program. When the emission intensity of remanufactured products satisfies a certain condition, it will realize a win-win situation under the coexistence of TON and TOR programs.