Phase-by-phase pricing vs unified dual pricing: how suppliers collaborate with manufacturers in remanufacturing

Abstract

In remanufacturing, suppliers and manufacturers often negotiate wholesale pricing contracts for un-remanufactured components, which are categorised into phase-by-phase (PP) and unified dual (DU) pricings based on the intertemporal market-pricing discrimination. This study investigates suppliers’ optimal pricing strategies and manufacturers’ optimal remanufacturing strategies for the two methods and identifies the strategies preferred by each party for remanufacturing cost savings. The results indicated that both the parties preferred a DU pricing agreement only when the cost savings were exceptionally high, which leads to the dilemma that manufacturers will have no financial incentive to invest in remanufacturing technologies, owing to suppliers’ complete domination over the supply chain instead. Therefore, a two-part tariff was applied to coordinate the supply chain and mitigate the challenges experienced by manufacturers caused by ‘bottleneck’ technologies controlled by the suppliers. Notably, when the cost-savings were not low, it was difficult for suppliers to avoid the intertemporal market-price discrimination induced by manufacturers because of a lack of sufficient order demand. Moreover, the remanufacturing technology threshold for manufacturers to turn on remanufacturing was lower for PP pricing. Finally, our study demonstrates that the growth in corporate profits and consumer surplus is often at the expense of environmental benefits.