Product design and pricing strategies in a closed-loop supply chain with patent protection

Abstract

PurposeThis paper aims to propose a two-period model in which an original equipment manufacturer (OEM) decides the remanufacturability level of products in product design and unit patent licensing fee at the first period, and a third-party remanufacturer (3PR) that has been licensed by the OEM enters the remanufacturing market to compete with the OEM at the second period.Design/methodology/approachThis paper analyzes the OEM's optimal decisions of remanufacturability level in the product design and unit patent licensing fee at the first period, as well as the OEM's and the 3PR's optimal decisions of selling prices at the second period, under two scenarios that the remanufacturing is constrained or unconstrained by the collected quantity available at the end of the first period, by making use of game theory.FindingsThe study finds that the OEM will choose high remanufacturability in product design only when the unit cost saving of remanufacturing or unit production cost of new products exceed certain thresholds.Originality/valueThe study is the first attempt to simultaneously integrate product design and patent licensing in remanufacturing. It provides useful insights for OEM managers who face competition from 3PRs and may use their product design strategies to deter 3PRs and may protect patent of products by levying patent licensing fees from 3PRs.