Patented product remanufacturing and technology licensing in a closed-loop supply chain

Abstract

In practice, the OEM may license technology to a remanufacturer to help the remanufacturer carry out remanufacturing activities while charging patent licensing fees. This kind of cooperative behavior has a significant impact on the environmental and economic benefits brought by remanufacturing activities. However, the patent licensing behavior will also improve the quality of remanufactured product produced by remanufacturer, and increase their competition with OEM’s products. So, how do consumers' quality preferences for products affect OEMs' patent licensing decisions? What kind of patent license contract can bring more profits to the OEM? Which patent license contract is more beneficial to environmental protection? To answer these questions, this paper examines the best production strategies and the best technology cooperation mode of the supply chain member companies, with considering the influence of consumers’ quality preferences. Via the Cournot duopoly model, three common licensing strategies are investigated and compared, and the following conclusions are drawn. (i) When the OEM does not license the patent, if the quality of the remanufactured product is relatively low compared with that of the new product, the remanufacturer will not enter the market to carry out remanufacturing activities. (ii) The OEM will benefit from the quality-improved remanufacturing patent license, and will be willing to license the patented technology to the remanufacturer only if the unit cost gap between the new and remanufactured products is not very large. The higher the quality of the remanufactured product prior to patent licensing, the lower the patent licensing fee that the OEM can charge, and the lower the profit that the OEM can obtain through the patent licensing. (iii) Two-part tariff licensing is always the best patent licensing strategy for the OEM, regardless of the quality level of the remanufactured product prior to patent licensing. This study elucidates the optimal patent licensing strategy options for the OEM and provides some theoretical contributions and practical implications.