Relicensing scheme selection in closed-loop supply chains with differentiated new and remanufactured products

Abstract

Secondary markets have gradually been attracted widespread attention from various industries, in which firms recycle or remanufacture used products to obtain the product value remaining after consumers’ consumption. A key issue in the secondary market is remanufacturing patent licensing, which significantly affects the remanufacturing operational efficiency and firms’ profitability. In a closed-loop supply chain (CLSC), certain original equipment manufacturers (OEMs) often authorize the downstream retailer or an independent third-party to collect and remanufacture products by charging a relicensing fee. This study considers two relicensing schemes: the OEM licenses the retailer to remanufacture (Model R), and the OEM licenses the third-party to remanufacture (Model TP). By developing game-theoretical CLSC models that consists of the OEM, retailer, and third-party, we compare equilibrium quantities and prices, profits, consumer surplus, environmental performance, and social welfare under the two relicensing schemes. The results show that the OEM earns a higher profit under the Model TP than that in Model R. In addition, even though Model R yields higher environmental performance, consumers are better off in Model TP. From the supply chain and social planner’s perspectives, when consumers’ willingness-to-pay for the remanufactured product is sufficiently high, Model R outperforms Model TP. Finally, we extend the basic model by allowing the case of additional retailer competition and the coexistence of authorized and unauthorized remanufacturers and prove that the main results are qualitatively robust to these extensions.