The impact of donation subsidy of remanufactured products on Manufacturer's pricing-production decisions and performances

Abstract

Realization of value of remanufactured products through social donations is evident in practice. Many companies donate products to meet their corporate social responsibilities, reduce pressure on government resources and improve social welfare. Donation behavior has a positive impact and is supported by government's subsidy incentive. This paper introduces donation subsidy for remanufactured products and formulates a two-period dynamic model to investigate the impact of donation subsidy on production and pricing decisions. We explore whether and under what conditions introducing subsidy policy improves the environmental performance, whilst increasing the economic performance. The results showed that the remanufactured products only for sale is a special example of the remanufactured products available for both sale and donation, namely, donations of remanufactured products are absent when government subsidy incentive is invalid. Donation subsidy increases the second-period quantity of new products and donation quantity of remanufactured products and decreases sale quantity of remanufactured products. A sufficiently high subsidy increases the first-period quantity of new products. Overall, introducing donation subsidy of remanufactured products expands the demand for both the new and remanufactured products and leads to the premium effect of remanufactured products. When the cost of new products is low, introducing donation subsidy for remanufactured products is an economic and environmental “win-win” strategy. When the cost of new products is moderate, the government can adjust the subsidy price to achieve the desired economic and environmental performances. The above two situations exist a unique optimal subsidy price which improves the manufacturer's profit and achieves the best environment. For the high-cost products, the improvement of economic profit is at the expense of environment.