Reverse channel design: the impacts of differential pricing and extended producer responsibility

Abstract

We study the design of reverse channels in a supply chain consisting of a manufacturer and a retailer. The manufacturer makes a new product and sells it through the retailer in a previous period. Used products are collected for remanufacturing at the end of the previous period. In the current period, remanufactured products are sold at a lower price, together with the new products. The used products can be collected either by the manufacturer or by the retailer. A minimum percentage for remanufactured products is enforced by a government extended producer responsibility (EPR) policy. We use game theoretic models to explore how the optimal reverse channel choice is influenced by the pricing difference on new and remanufactured products, and by the government EPR policy. We find that the most effective way to collect used products is through the manufacturer. In addition, the government EPR policy can benefit remanufacturing activities, promote sales of the remanufactured products, and increase supply chain profit. We also show that the manufacturer benefits more when consumers are more willing to pay for a remanufactured product.