Quality and selling format choices in a supply chain considering remanufacturing competition

Abstract

PurposeThe purpose of this study is to explore the interplay between the selection of selling formats of remanufactured products for a third-party remanufacturer (TPR) and the quality decision of an original equipment manufacturer (OEM).Design/methodology/approachThis study considers a remanufacturing supply chain, where the OEM sells new products through a platform retailer, but the products remanufactured by the TPR can be sold via a direct or indirect channel. The authors model a Stackelberg game and explore the optimal quality decision of the OEM and selling format choice of the TPR.FindingsThe OEM's optimal decision depends mainly on consumers' discounted utility coefficient and cost-scale factor of remanufactured products. A higher consumers' valuation of the remanufactured product will not result in a higher retail price, but may lead to an increase in new product's sales. Given the cost-scale factor, the TPR prefers to sell directly no matter what the value of consumers' discounted utility coefficient is. An all-win situation is achieved with selling directly when consumers' discounted utility coefficient is sufficiently large.Practical implicationsThese results provide some support to the operational strategies of the OEM and TPR.Originality/valueThis study firstly endogenizes the quality decision and combines the selling format selection of the TPR and the quality decision of the OEM to explore the interplay between these two important decisions.