Remanufacturing mode choice considering consumer’s dual preference under patent licensing

Abstract

Many original equipment manufacturers (OEMs) do not remanufacture by themselves, but instead license the remanufacturing business to other companies for a royalty. This paper examines to whom OEM should outsource remanufacturing when both distributors and independent third-party remanufacturers (TPR) are capable of remanufacturing. We have established three models: OEM licenses remanufacturing to the distributor (model DR); OEM licenses remanufacturing to TPR (model TR); OEM licenses remanufacturing to both the distributor and TPR (model DTR). We compared the optimal strategies of each member of the supply chain in the three models and analyzed the influence of consumers' dual preference for the remanufactured product on the decision making. The results showed that when consumers are reluctant to purchase a certain type of remanufactured product, OEM prefers to outsource the remanufacturing business to TPR. Otherwise, OEM prefers to license remanufacturing to both the distributor and TPR. In terms of two single remanufacturing modes, whether for OEM or TPR, TPR remanufacturing mode is always better than the distributor remanufacturing mode.