Optimal recycling and pricing strategies with active and passive return

Abstract

As pro-environmental behaviors in business are advocated, recycling process has become a hot topic in the supply chain management. Besides the traditional wholesales and retail for new products, manufacturers would like to recycle and reprocess used products with consideration of production costs and pressure from environment protection. This paper considers the recycling process implemented by manufacturers themselves or entrusted to retailers to implement. A two-period model is established to discuss the optimal recycling and pricing strategies for manufacturers and retailers under both active return and passive return. The results show that the manufacturers and retailers are always better off in active return than that in passive return. The decision that manufacturers participate to the recycling by themselves or entrust it to retailers depends on the return rate and the collection cost. Numerical simulations and sensitivity analysis are implemented to demonstrate our results and illustrate the effect of each parameter on the optimal strategies.