Outsourcing or Not? The OEM’s Better Collecting Mode under Cap-and-Trade Regulation

Abstract

Many original equipment manufacturers (OEMs) carry out collecting operations by themselves or a third party. Most of the existing research papers in the literature consider the collecting mode selection problem from an economic perspective. However, in practice, the firm’s collecting decisions can be affected by the carbon policies at present. This paper aims to bridge the gap in research on remanufacturing supply chain by taking the effects of cap-and-trade regulation into consideration. Stackelberg models are established to study the quantity and price decisions under different collecting modes. We find that the OEM reaps more profits in the OEM collecting mode than the third-party collecting mode when collection cost is large. Otherwise, the third party has lower collection cost, and the third-party collecting mode may make the OEM more profitable. From an environmental perspective, with high collection cost, the third party collecting mode can reduce the carbon emissions unless the cost of new products and the emissions intensity are small. In addition, when the collection cost is low but the quantity of remanufacturing products is restricted by that of new products, the third party collecting mode may increase the carbon emissions. In addition, the implementation of cap-and-trade regulation can always reduce carbon emissions, and it may increase the OEM’s profits if consumers preference for remanufactured products is small.