Cost information sharing under competition in remanufacturing

Abstract

Third-party remanufacturers (TPRs) enter the market and compete with original equipment manufacturers (OEMs). Because of multiple uncertainty of the remanufacturing process, the variable remanufacturing cost is random and its true value cannot be observed by OEMs. In this paper, we consider the competition between one TPR and one OEM, and then investigate incentives of cost information sharing. The remanufactured product quantity is constrained by the new product quantity. If the new production cost is low enough such that the optimal remanufactured product quantity is less than the optimal new product quantity, the TPR should always share cost information with the OEM so that their quantity decisions in equilibrium are more responsive to market conditions to avoid overproduction or underproduction. However, if the quantity constraint is binding, the TPR should not always share cost information; in this case, cost information sharing can allow the OEM to adjust the new product quantity to limit remanufacturing and hence be detrimental to the TPR. When the TPR does not voluntarily share cost information, we further examine the impacts of private information on the society and the environment, and then suggest the government to promote information sharing and subsidise the TPR under certain conditions.

Keywords:

• third-party remanufacturing
• competitive strategy
• information sharing
• government policy
• game theory

Acknowledgements

We thank the editors and two reviewers for providing very constructive and helpful comments. Authors are listed alphabetically.

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplemental data

Supplemental data for this article can be accessed at http://dx.doi.org/10.1080/00207543.2019.1567952.

ORCID

Yu Zhou http://orcid.org/0000-0002-6853-3482

Notes

1 See https://fanmanufacturers.com/news/hot-topic-1-remanufacturing/.

2 See https://www.therecycler.com/posts/i-itc-allies-with-remanufacturing-organisations/.

3 It is available on the website of the central government of China, http://www.gov.cn/zwgk/2010-05/31/content_1617310.htm (in Chinese).

4 A more sophisticated probability distribution of the remanufacturing cost has been considered in the Appendix B. The numerical analysis demonstrates that our main results are qualitatively preserved.

5 A two-period model has been considered in the Appendix C. The numerical analysis demonstrates that our main results are qualitatively preserved.

Additional information

Funding

This work was supported by National Natural Science Foundation of China [grant numbers 71471021, 71472017, and 71601025] and Fundamental Research Funds for the Central Universities [grant number 2018CDXYJG0040].