Informal collectors’ formalization has become a key challenge that developing countries such as China face in governing informal recycling. This study establishes an innovative collection model of waste electrical and electronic equipment (WEEE) under the membership community operation system, which integrates waste merchants into the formal recycling system in the form of members. Based on a Bass model of membership community development and an evolutionary game model between recyclers and waste merchants, respectively, this study uses system dynamics theory to simulate and analyze the model’s implementation effectiveness and influencing factors. We find that the membership community’s interpersonal promotion and customer relationship management strategies can increase waste merchants’ membership rate and membership loyalty, which is an effective way to incorporate waste merchants into the formal recycling system. Waste merchants’ main interest demands in the formalization process are to gain economic benefits and identity recognition, which motivate them to become members. Membership’s transaction cost establishes a long-term cooperative relationship between waste merchants and recyclers in the form of an economic contract. However, the potential losses from information sharing are the key factor restricting waste merchants from enrolling as members, which has also become the main obstacle to their formalization. This study provides a new theoretical and empirical basis for informal collectors’ formalization, which has important practical significance for WEEE recycling and management in developing countries.