Market entrance and pricing strategies for a capital-constrained remanufacturing supply chain: effects of equity and bank financing on circular economy

ABSTRACT

This paper examines market entrance and pricing strategies for a remanufacturer with capital constraint and competition from an original equipment manufacturer. In the study, the remanufacturer is divided into two types, namely the H-type and L-type, and is assumed to have access to bank loans and equity financing to ease the capital constraint. With the Nash game, it is found that (i) if remanufacturing is costly, the remanufacturer will choose partial remanufacturing and not enter into the remanufacturing market until the equity financing ratio excesses a certain threshold. (ii) A H-type remanufacturer is more flexible in term of market entrance than a L-type remanufacturer. (iii) The remanufacturer’s profit increases first and then decreases in the equity ratio. (iv) Equity ratio and interest rate have opposite effects on the pricing of the new and remanufactured products. Furthermore, with some research extensions, it is exhibited that the results and managerial implications developed in the paper hold well for different financing modes and the random demand setting, and hence are robust to a good extent.

KEYWORDS:

• Remanufacturing supply chain
• circular economy
• capital constraint
• equity financing
• bank loans

Acknowledgements

The authors would like to thank the editor and the anonymous referees for their constructive comments and suggestions on earlier versions of this paper. This work was partially supported by the National Natural Science Foundation of China (71871063, 71901066), The Fundamental Research Funds for the Central Universities in UIBE (CXTD11-06), the Education Department of Shaanxi Provincial Government (19JK0355), the Xi'an Science and Technology Bureau (2019111913RKX003SF007-2), and the Shaanxi Science and Technology Department (2020KRM001).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was partially supported by the National Natural Science Foundation of China [grant numbers 71871063, 71901066], the Fundamental Research Funds for the Central Universities in UIBE [grant number CXTD11-06], the Education Department of Shaanxi Provincial Government [grant number 19JK0355], the Xi'an Science and Technology Bureau [grant number 2019111913RKX003SF007-2], and the Shaanxi Science and Technology Department [grant number 2020KRM001].

Notes on contributors

Yanyan Zheng

Yanyan Zheng received her PhD degree in Management Sciences and Engineering from Hunan University in 2018. She is currently an associate professor at the School of Management Engineering of Xi’an Polytechnic University and a postdoctoral researcher at the School of Industrial Engineering of Xi’an Jiaotong University. Her research interest mainly focuses on supply chain management, and her research papers have been published in journals including International Journal of Production Research, Applied Economics, Operational Research – An International Journal, and System Engineering Theory and Practice (in Chinese).

Yingxue Zhao

Yingxue Zhao received his PhD degree in Management Sciences and Engineering from the Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences (CAS), in 2010. He is currently professor of Supply Chain Management at the School of International Trade and Economics of the University of International Business and Economics. He has received some important academic awards including the ‘Outstanding Paper Award ’ awarded by IEEE Systems, Man and Cybernetics (SMC) and the ‘ Excellent Research Award for Scientific Research of Universities (Humanities and Social Sciences) ’ awarded by the Ministry of Education of China. His research interest mainly focuses on supply chain management, and his research papers have been published in journals including Production and Operations Management, European Journal of Operational Research, Annals of Operations Research, International Journal of Production Research, Journal of the Operational Research Society, Journal of Optimization Theory and Applications, and International Journal of Production Economics.

Xiaoge Meng

Xiaoge Meng received her PhD degree in Management Sciences and Engineering from the School of Economics and Management, Beijing University of Aeronautics & Astronautics, in 2018. She is currently assistant professor at the School of Economics and Management of the Institute of Disaster Prevention. She has received some important academic awards including the ‘ Excellent Paper Award ’ awarded by the 10th Annual Meeting of the Chinese Logistics Society (CLS) and the ‘ Excellent Research Award for Scientific Research of Universities (Humanities and Social Sciences) ’ awarded by the Ministry of Education of China. Her research interest mainly focuses on supply chain management, and her research papers have been published in journals including International Journal of Production Economics, International Journal of Production Research, Abstract and Applied Analysis, Applied Mathematics and Computation, and Journal of Systems Science and Complexity.