Competition in remanufacturing and the effects of government subsidies

Supriya Mitra, Scott Webster

Research output: Contribution to journalArticle

256 Scopus citations

Abstract

In this paper, we analyze a two-period model of a manufacturer who makes and sells a new product and a remanufacturer who competes with the manufacturer in the second period. We examine the effects of government subsidies as a means to promote remanufacturing activity. In particular, we consider a subsidy proportional to remanufacturing volume that is paid solely to the remanufacturer, solely to the manufacturer, or shared among the firms. We find that the introduction of subsidies increases remanufacturing activity, and that the manufacturer's profits generally decrease while the remanufacturer's profits increase when 100% of the subsidy goes to the remanufacturer. We also find that a policy-maker should consider a subsidy scheme with some positive fraction of the subsidy paid to the manufacturer. Remanufacturing activity is generally higher and profits of both firms increase. In addition, subsidy sharing creates incentives for the manufacturer to design a product that is more suitable for remanufacturing, and to be more open to efforts to increase the return rate of end-of-life products.

Original languageEnglish (US)
Pages (from-to)287-298
Number of pages12
JournalInternational Journal of Production Economics
Volume111
Issue number2
DOIs
StatePublished - Feb 1 2008
Externally publishedYes

Keywords

  • Closed-loop supply chains
  • Competitive strategy
  • Pricing
  • Remanufacturing
  • Reverse logistics

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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