Used-Part-Collection Programs in Manufacturing Systems for Products With Reusable Parts: Roles of Risk Aversion and Platforms

Abstract

Many consumer products, e.g., printer’s cartridges, milk’s glass bottles, etc., are sold with reusable parts, which can be formally collected under a used-part-collection (UPC) program. In today’s markets with high volatility, risk is present for UPC operations. In this article, building via standard consumer utility-based models, we uncover the value of the UPC program in a production system. In the basic model, we consider the case when the manufacturer is risk averse. For both the cases with and without UPC, the optimal product pricing and quality decisions are determined and the respective manufacturer’s utility and consumer surplus are derived. The values of UPC to the manufacturer and consumers are found. We find that: 1) both quality improvement and UPC can be beneficial to consumers under some situations and 2) the optimal quality level, the optimal utility, and the consumer surplus are independent of the return fee. In the extended models, we explore two cases, namely, the case when consumers are risk averse, and the case with a collection platform, which can enhance the collection rate. We find that no matter what the level of consumers’ risk averse is, it reduces consumers’ benefits. Moreover, a higher platform’s power is beneficial to the manufacturer and consumers but may reduce the platform’s profit.