Team of rivals: How should original equipment manufacturers cooperate with independent remanufacturers via authorisation?

Abstract

Authorisation is a commonly used strategy for OEMs who do not have remanufacturing capability but still want to extract some benefits from the remanufacturing market. In this paper, we analyse two authorisation strategies: one is dealer authorisation, i.e., the OEM turns the independent remanufacturer (IR) into an authorised dealer selling both new and remanufactured products; the other is remanufacturing authorisation, i.e., the OEM authorises the IR to remanufacture used products by charging an authorisation fee. A stylised model is developed to compare the three scenarios: competition, cooperation with dealer authorisation and cooperation with remanufacturing authorisation. Our results show that cooperation depends on the effect of authorisation on the improvement of customers’ willingness-to-pay for remanufactured products. Although remanufacturing authorisation is preferred by the OEM, only dealer authorisation is achievable under certain conditions. Interestingly, while the OEM’s profit decreases in new product cost in general, it may increase when higher cost causes a strategy switch from competition (dealer authorisation) to remanufacturing authorisation. Furthermore, we analyse the environmental and social impact of cooperation and identify the conditions under which cooperation benefits the environment and consumers. While cooperation can achieve a win-win-win situation on the triple bottom line, the choice of authorisation mode always presents a conflict between environmental and consumer benefit.