We investigate a durable product retailing and recycling problem in a closed-loop supply chain consisting of a single manufacturer and two competitive retailers, in which the manufacturer collects used products via retailers from the consumers and has sufficient channel power over the retailers to act as a Stackelberg leader; the retailers compete in retail products and recycling used products. In order to analyze the impact of retailing and recycling competitions on the profits of the manufacturer and the competitive retailers, two collection models (coordinated collection (Model
Durable product remanufacturing and processes for sustainable manufacturing play an important role in closed-loop supply chain operations. Increasingly, manufacturers are establishing economically viable production and distribution systems that enable remanufacturing of used products in parallel with the manufacturing of new units. Remanufactured products are typically upgraded to the quality standards of new products, so that they can be sold in new product markets.
In current practice, HP, Xerox, and Apple are retail competitive products that utilize retailers for collecting their used products and have created a fully integrated manufacturing-remanufacturing strategy around their reusable product lines [
In current literature, the operations of typical closed-loop supply chain have been widely studied [
For the research in reverse channel of closed-loop supply chain, the contracting of collecting the used products affects not only the supply of used products but also the price of the remanufactured product. Hong et al. [
However, among all the literature associated with the closed-loop supply chain problems under competition, most of them have considered the retailing or recycling competition problems respectively, but few of them consider the impact on the closed loop supply chain members involved in retailing and recycling competitions together. Actually, retailing and recycling competitions often exist together in closed-loop supply chain. For example, HP’s cartridges, Apple’s cellphone, the Xerox’s office equipment, and so forth have both retailing and recycling competitions [
More specifically, we address the following questions. How do the competitive factors of retailing and recycling affect the decision of the manufacturer and each retailer (i.e., retail price, repurchase price, wholesale price, and buy-back payment)? How do the retailing and recycling competitions affect the profits of the channel members?
The rest of the paper is organized as follows. Section
This paper investigates a durable product retailing and recycling problem in a closed-loop supply chain consisting of a single manufacturer and two competitive retailers; two collection ways (coordinated collection and decentralized collection) are introduced (see Figure
Closed-loop supply channel structures.
Coordinated collection (model
Decentralized collection (model
According to the consumption nature of durable product, assume that the variation of retail price has little effect on the size of retailing market; that is, the demand of market sizes for customers has little sensitivity to retail price, and the variation of repurchase price has little effect on the size of recycling market. Consistent with the extant literature [
Consistent with the existing literature [
We assume that retailer
Considering the relationship between the demand functions and recycling functions, we assume
According to the above assumptions and notations, the channel’s profit function in the case of coordinated collection is
The manufacturer profit function in the case of decentralized collection is
Each retailer’s profit function in the case of decentralized collection is
In this section, two equilibrium models are discussed in the cases of coordinated collection and decentralized collection, respectively.
According to (
In the case of coordinated collection, the optimal retail
According to (
By using the assumptions
By combining (
In the case of coordinated collection, the retail prices
According to (
It follows from the assumptions
In the case of coordinated collection, the repurchase prices
According to (
By assumptions
Corollary
In the case of coordinated collection, the profit of forward channel is strictly increasing with respect to the retailing substitution effect and decreasing with respect to the recycling substitution effect. While the profit of reverse channel is strictly decreasing with respect to the retailing substitution effect and increasing with respect to the recycling substitution effect.
First, for the analysis of the profit in forward channel, for any given
Second, for the analysis of the profit in reverse channel, for any given
From what is discussed above, in the case of coordinated collection, we can obtain some managerial insights in practice. It is illustrated that the variation tendency of the forward channel profit is decided by the difference between the increase of forward channel profit from the retailing substitution effect and the decrease of forward channel’s profit stemmed from the recycling substitution effect. Similarly, the variation of reverse channel profit is decided by the difference between the increase of reverse channel profit for the retailing substitution effect and the decrease of reverse channel profit for the recycling substitution effect. Additionally, the variation of the total profit of forward and reverse channel is uncertain. Furthermore, the manufacturer can induce lower retailing substitution effect and higher recovery substitution effect to collect more obsolete products and increase the profit of reverse channel. In other words, the manufacturer can easily achieve the goal of remanufacturing strategy by recovering the residual value of used products.
In the case of decentralized collection, the manufacturer decides on the wholesale price
We can obtain retailer
In the case of decentralized collection, the retailer’s optimal reaction retail price
The second-order partial derivatives of retailer’s profit
By using the assumptions
According to (
By combining (
The retail price is increasing with respect to the wholesale price
By the assumptions
Substituting (
In the case of decentralized collection, the manufacturer’s optimal wholesale price
The second-order partial derivatives of
By the assumptions
According to (
In the case of decentralized collection, the optimal retail
By substituting (
In the case of decentralized collection, the manufacturer’s profit of forward channel is strictly increasing with respect to the retailing substitution effect and decreasing with respect to the recycling substitution effect, while the manufacturer’s reverse channel’s profit is increasing with respect to the retailing substitution effect and decreasing with respect to the recycling substitution effect.
First, we analyze the retailing substitution effect’s impact on the manufacturer’s profit in forward channel. According to (
Second, we analyze the retailing substitution effect’s impact on the manufacturer’s profit in reverse channel. According to (
It is illustrated that in the case of decentralized collection, the variation of manufacturer’s profit in forward or reverse channel is decided by the difference between the increase of forward or reverse channel profit for the retailing substitution effect and the decrease of forward and reverse channel profit for the recycling substitution effect. Additionally, the change of closed-loop supply chain’s profit with respect to the retailing and recycling substitution effects is uncertain in the case of decentralized collection. On the other hand, the manufacturer can induce higher retailing substitution effect and lower recovery substitution effect via choosing suitable wholesale price and buy-back payment to collect more obsolete products and increase the profit of reverse channel. It means that the manufacturers can achieve their goal of remanufacturing strategy by recovering the residual value of used products.
In the case of decentralized collection, the retailer’s profit of forward channel is strictly increasing with respect to the retailing substitution effect and decreasing with respect to the recycling substitution effect, while his reverse channel profit is decreasing with respect to the retailing substitution effect and recycling substitution effect.
First, we analyze the retailing substitution effect’s impact on the retailer’s profit in forward channel. According to (
Second, we analyze the retailing substitution effect’s impact on the retailer’s profit in reverse channel. According to (
Proposition
In a word, the variations of manufacturer and retailer’s respective profit with the retailing substitution effect in forward channel are uniform, but in the reverse channel they are inconsistent. For example, the higher recycling substitution effect will induce the manufacturer to get more profits in reverse channel (i.e., augments the scale of the manufacturer’s reverse supply chains). But the higher recycling substitution effect will cause the retailer to obtain less profits in reverse channel (i.e., cut down the scale of the retailer’s reverse supply chains). There is a contradiction between the profits of the manufacturer and the retailer in reverse channel, because the manufacturer has sufficient channel power over the retailers to act as a Stackelberg leader; thus the manufacturer can choose the appropriate wholesale price and buy-back payment to achieve the remanufacturing strategy and balance the retailer’s profit. And we make a comparison with the coordinated collection; we can easily know that the coordinated collection is more effective to augment the scale of the whole reverse supply chains than decentralized collection.
In this section, numerical examples are provided to compare the results obtained in the above two different collection models and to analyze the impacts of retailing and recycling substitution effects on the decisions and profits of chain members. Some managerial insights can be derived through the numerical analysis. The numerical analysis is performed for
In this subsection, we discuss the impacts of retailing and recycling substitution effects on the retail price, repurchase price, the forward channel profit, and reverse channel profit in the case of coordinated collection, respectively.
From the previous assumptions and analysis, we know that the retail price is strictly increasing with respect to retailing substitution effect; that is, the higher retailing substitution effect will induce the increase of retail price. Moreover, the higher recycling substitution effect will induce the increase of retail price; the higher recycling substitution effect will induce the decrease of repurchase price. In addition, the higher retailing substitution effect will induce the decrease of retail price. The green and blue lines in Figures
Impact of the retailing and recycling substitution effects on price in model
Impact on the retail price
Impact on the repurchase price
From the previous assumptions and analysis, we know that the profit of forward channel is strictly increasing with respect to retailing substitution effect and decreasing with respect to recycling substitution effect; that is, the manufacturer can induce higher retailing competition and lower recycling competition to obtain more profit from forward channel.
And we known that the profit of reverse channel is strictly decreasing with respect to retailing substitution effect and increasing with respect to recycling substitution effect; that is, the manufacturer can induce lower recycling substitution effect to obtain more profit in the reverse channel. In other words, the manufacturer can induce higher retailing substitution effect and lower recycling substitution effect could obtain more profit in closed-loop supply chain. The green and blue lines in Figures
Impact of the retailing and recycling substitution effects on channel profit in model
Impact on the profit in forward channel
Impact on the profit in reverse channel
In this subsection, we discuss the impacts of retailing and recycling substitution effects on the retail price, repurchase price, the forward channel profit, and reverse channel profit in the case of decentralized collection, respectively.
From the previous assumptions and analysis, we know that the retail price is strictly increasing with respect to retailing substitution effect; that is, the higher retailing substitution effect will induce the increase of retail price. And the higher recycling substitution effect will induce the decrease of retail price. And we known that the repurchase price is strictly decreasing with respect to recycling substitution effect; that is, the higher recycling substitution effect will induce the increase of repurchase price, while the higher retailing substitution effect will induce the decrease of retail price. The green and blue lines in Figures
Impact of the retailing and recycling substitution effects on price in model
Impact on the retail price
Impact on the repurchase price
According to the assumptions and the analysis, we know that the manufacturer’s profit of forward channel is strictly increasing with respect to retailing substitution effect and decreasing with respect to recycling substitution effect. And the manufacturer’s profit of reverse channel is strictly decreasing with respect to retailing substitution effect and recycling substitution effect. In other words, in the case of decentralized collection, the manufacturer can induce higher retailing competition and lower recycling competition to obtain more profit in the forward channel and induce lower recycling substitution effect to obtain more profit in the the reverse channel. So, the manufacturer can select higher retailing substitution effect and lower recycling substitution effect to obtain more profit in their closed-loop supply chain. Moreover, the higher recycling competition will induce the lower profit of forward channel and induce lower profit of reverse channel.
For the forward channel profit of retailers is strictly increasing with respect to retailing substitution effect and decreasing with respect to recycling substitution effect. And the retailers’ profit of reverse channel is strictly decreasing with respect to retailing substitution effect and increasing with respect to recycling substitution effect. In other words, in the case of decentralized collection, for the retailers, the higher retailing competition and lower recycling competition can make them obtain more profit in their forward channel, but the lower retailing substitution effect and higher recycling substitution effect can make them obtain more profit in the reverse channel. So, the retailers tend to select suitable retail price and repurchase price to induce retailing and recycling competitions (not too high or too low, the higher retail substitution effect will make the profit of reverse channel negative or the lower recycling substitution effect will make the profit of forward channel decrease) to obtain more profit in their closed-loop supply chain. The lines in Figure
Impact of the retailing and recycling substitution effects on channel profit in model
Impact on the manufacturer’s profit in forward channel
Impact on the manufacturer’s profit in reverse channel
Impact on the retailers’ profit in forward channel
Impact on the retailers’ profit in reverse channel
In this subsection, we discuss the impact of retailing substitution effect on the optimal prices and optimal channel profits and compare them in the case of coordinated collection with that of decentralized collection.
From the previous assumptions and analysis, we know that the retail price in the case of coordinated collection is lower than that in decentralized collection; that is, facing the same circumstances, the retail price in the case of decentralized collection is higher than that in coordinated collection. And the repurchase price in the case of decentralized collection is lower than that in coordinated collection. It implies that, for the retailer, the coordinated collection has more price advantages (lower retail price and higher repurchase price) than the decentralized collection in the closed-loop channel. The lines in Figure
Pricing decisions of coordinated collection versus decentralized collection.
Comparison of retail price
Comparison of repurchase price
In what is discussed above, we know that the channel profit in model
In this subsection, we discuss the impact of retailing and recycling substitution effects on the optimal forward channel profits and optimal reverse channel profits in the cases of coordinated collection and decentralized collection.
From the previous assumptions and analysis, we know that the recycling substitution effect’s impact on the closed-loop supply channel profit in the case of coordinated collection is more obvious than that in decentralized collection. In other words, the manufacturer can obtain more profit than in decentralized collection more easily by changing the recycling substitution effect. The reason may be as follows: in the case of coordinated collection, the retail price and repurchase price are made by the center planner (i.e., manufacturer); this collection model can adjust the retail and repurchase price fast and accurately. But in case of decentralized collection, there is a pricing game between manufacturer and retailers. The manufacturer firstly selects optimal wholesale price and buy-back payment; then the retailers select their optimal reaction retail price and repurchase price; that is, the pricing game and pricing decision are unsynchronized between the manufacturer and retailer, so the manufacturer can obtain more profits in the case of coordinated collection than the case of decentralized collection. The lines in Figures
The profit of coordinated collection versus decentralized collection.
Comparison of forward channel profits
Comparison of reverse channel profits
Impact of the retailing and recycling substitution effects on closed-Loop supply chain’s profit.
Impact on the closed-loop supply channel’s profit in model
Impact on the closed-loop supply channel’s profit in model
In this paper, we investigated a durable product retailing and recycling problem in a closed-loop supply chain consisting of a single manufacturer and two competitive retailers. The results demonstrate that more intense retailing competition induces the increase of the forward and reverse profits of manufacturer and the forward channel of retailers and decrease of the retailers profit in reverse channel, while more intense recycling competition induces the decrease of the profits of the manufacturer and retailers in forward and reverse channels, while the whole supply chain’s profit of model
This paper makes a contribution to the literature on reverse channel choice and coordination by drawing attention to closed-loop supply chains with competition of retailing and recycling. Our future research will be as follows: our model does not consider any fixed costs of retailing/recycling a collection system. If such costs were incurred, a minimum number of retailing/returns would be required to justify the cost of operations. Last but not least, our cost formulation does not include any operational/capacity constraints in the channel of products collection. Operational/capacity constraint on the channel of collection can be incorporated into the model by defining an upper bound on the number collected via each channel. Another possibility is to model the collection cost as a quadratic function of the quantity returned.
Retailing substitution effect
Market size of the retailers in the forward channel
Market size of the retailers by free recovering in the reverse channel
Unit saving cost by remanufacturing
Recovering coefficient
Unit cost of remanufacturing a returned product into a new one
Unit cost of manufacturing a new product
New product’s wholesale price of the manufacturer
Obsolete product’s repurchase price from the retailers to the manufacturer
Demand function of retailer
Recycling function of retailer
Retailer
Retailer
Profit function for channel member
The authors declare that there is no conflict of interests regarding the publication of this paper.
The authors are grateful to the referees for their useful comments and suggestions, which improved the presentation of the paper. This work is supported by the Humanity and Social Science Foundation of Ministry of Education, China, no. 12YJAZH052 and the National Natural Science Foundation of China under Grant no. 71301114.