Remanufacturing Strategy under Cap-and-Trade Regulation in the Presence of Assimilation Effect

Abstract

In this paper, we consider the choice of remanufacturing strategy of a monopolist original equipment manufacturer under the cap-and-trade regulation in the presence of the assimilation effect. We model the manufacturer’s optimal decision-makings and associated profits under three different remanufacturing strategies. Our results indicate that the assimilation effect reduces the manufacturer’s motivation to become engaged in remanufacturing. Specifically, there exists a threshold for the intensity of the assimilation effect for the manufacturer to enter remanufacturing. First, when the assimilation effect is below the threshold, the manufacturer should choose to remanufacture. Otherwise, the manufacturer should only produce new products. Second, the value of the threshold for the assimilation effect is further determined by the remanufacturing’s emission advantage and the carbon trading price. In addition, when the intensity of the assimilation effect is high enough, the carbon trading price and carbon emission advantage no longer impacts the remanufacturing strategy. Lastly, our numerical examples reveal that ignoring the assimilation effect can lead to up to 56.2% loss of potential profit for the manufacturer.