Trade-in and save: A two-period closed-loop supply chain game with price and technology dependent returns

Abstract

Consumers evaluate the convenience of changing their products according to the price paid as well as the technology (quality) level. When the consumers wish to capitalize the products residual value, they should return them as early as possible. Accordingly, we develop a model of Closed-loop Supply Chain (CLSC) where consumers seek to gain as much as possible from their returns and the return rate is a function of both price and quality. We model a two-period Stackelberg game to capture the dynamic aspects of a CLSC, where the manufacturer is the channel leader. We investigate who, namely, manufacturer or retailer, should collect the products in the market. Thus, we identify the best CLSC structure to adopt when the return rate is both price- and quality-dependent. Our results demonstrate that it is always worthwhile for companies to collect products and adopt an active return approach for returns. We investigate the effect of retail competition in both forward and backward channels and show the impact of eliminating the double marginalization on market outcomes.