Abstract
Due to the increasing awareness of sustainable manufacturing, remanufacturing has been widely accepted by enterprises in many countries. In the process of Closed-Loop Supply Chain (CLSC) development, to stimulate the demand for remanufactured products, the Chinese government’s interventions such as the “Trade old for Remanufactured” program cannot be ignored. However, prior research has not answered the questions of whether governments should offer consumption subsidies and how to determine the optimal subsidy value. This paper investigates the optimal government consumption subsidy policy and its impact on the operation of Closed-Loop Supply Chain (CLSC) where an Original Equipment Manufacturer (OEM) produces new products, while a Third-Party Remanufacturer (TPR) remanufactures the used products collected from consumers. A game model with a leader (government) and two followers (OEM and TPR) is then introduced. The government determines the consumption subsidy to maximize the social welfare, while the TPR and OEM attempt to maximize their own profit functions. Game theoretic models are proposed to explore and compare the scenarios, i.e., CLSC with a consumption subsidy policy and without a consumption subsidy policy. The equilibrium characteristics with respect to the government’s consumption subsidy decisions and the price decisions for chain members are derived. Based on the theoretical and numerical analysis, the results show that: (1) governments should not always offer a consumption subsidy; (2) the consumption subsidy cannibalizes demand for new products while boosting the demand for remanufactured products; (3) the consumption subsidy should be shared between the TPR and consumers when the TPR raises the sales price of remanufactured product; (4) the members of the CLSC do not always benefit from the consumption subsidy policy.
Highlights
A supply chain is a complex system that needs careful coordination and well-thought design from the parties involved [1,2]
Wu [20] and Wu and Wu [21] focused on the impacts of Original Equipment Manufacturer (OEM)-remanufactured products on the independent remanufacturers’ operational decisions, and the results revealed that consumer loyalty to OEMs is not beneficial to the independent remanufacturer
Zhao et al [32] developed decision models for the pricing, service and recycling of Closed-Loop Supply Chain (CLSC), considering the technology authorization and different remanufacturing roles, and revealed that the degree of consumer willingness to purchase the remanufactured products has an important impact on the remanufacturing role choice (OEMs remanufacturing or the retailers remanufacturing under the technology authorization from OEMs) and the retail price of new or remanufactured products
Summary
A supply chain is a complex system that needs careful coordination and well-thought design from the parties involved [1,2]. The Chinese government has announced several programs such as a “Trade old for remanufactured” program or establishing a “model remanufacturing factories” program to attract more consumer attention to remanufactured products and to boost the demand for remanufactured products. In order to have a better understanding of whether the government should implement a consumption subsidy policy and its related impact on the CLSC’s members’ optimal strategy, the following important managerial questions must be answered: 1. Under what conditions should the government offer a consumption subsidy of remanufactured products?. 4. What benefits or costs can consumption subsidy policies bring to firms, consumers and society?.
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