Remanufacturing and pricing strategies under modular architecture

Abstract

Modular design is an approach that accelerates product development and facilitates product remanufacturing. We consider three product categories under modular architecture: the new product, the partially remanufactured product, and the fully remanufactured product. The new product consists solely of the new modules, the partially remanufactured product is composed of both the new and remanufactured modules, and the fully remanufactured product comprises entirely the remanufactured modules. In the market, there are environmentally conscious consumers known as green consumers, who place equal value on both new and remanufactured modules. However, other consumers known as primary consumers assign a lower value to the remanufactured module in comparison to the new one. This paper proposes an analytical model to investigate a manufacturer’s optimal remanufacturing and pricing strategies. Our results show that the manufacturer’s choice of the remanufacturing strategy depends on the production costs of the partially and fully remanufactured product, as well as the proportion of green consumers. In the absence of green consumers, the manufacturer should only produce the new product when the production costs of both the partially and fully remanufactured products are high. Otherwise, the manufacturer will produce the partially or the fully remanufactured product. Differently, in the presence of green consumers, the manufacturer should consistently engage in remanufacturing activities, and the specific remanufacturing and pricing strategies depend on the production costs. Importantly, regardless of whether there are green consumers, the manufacturer should adopt the partial remanufacturing strategy when the production cost of the partially remanufactured product is low. Regarding consumer surplus and social welfare, we find that in the absence of green consumers, the manufacturer’s optimal remanufacturing strategy consistently achieves the highest level of consumer surplus and social welfare, but this may not hold true in the presence of green consumers. Furthermore, a higher proportion of green consumers can sometimes decrease the manufacturer’s profit, consumer surplus, and even social welfare.