Use of a product service system in a competing remanufacturing market

Abstract

The use of product service systems to promote remanufacturing has been long considered. However, customer acceptance of pure product service systems is lower than that of traditional business models. This study examines the environmental and economic impacts of product service systems in a competitive remanufacturing market. To analytically and numerically evaluate three typical types of product service systems, we develop a two-period stylized model to capture the key elements that drive the original equipment manufacturer's strategy choice. Our results show that a product-oriented product service system acts as a coordinating mechanism between the original equipment manufacturer and third-party remanufacturer, resulting in an environmentally friendly product design and increased profit for both firms. Use-oriented and results-oriented product service systems allow the original equipment manufacturer to retain product ownership and deter the third-party remanufacturer's entry, resulting in greater economic and environmental efficiency. Although a results-oriented product service system performs best if customers highly value results-oriented product service systems, it may be less beneficial for the original equipment manufacturer if customers are unaccustomed to paying only for function.