Impact of Market Competition on Remanufacturing Investment

This article considers supply chain competition in which two symmetric manufacturers compete in both the new and remanufactured products markets. To engage in remanufacturing, the two competing manufacturers must appropriately determine their remanufacturing capability and design new products to facilitate their competition in remanufacturing. This inevitably changes the competing manufacturers’ cost structure in terms of both fixed and variable costs. The problem is formulated as a two-stage game. Therein, the competing manufacturers first determine whether to invest in remanufacturing, followed by determining the production quantities of new and remanufactured products if they decide to invest in remanufacturing. Our analytical results reveal that the equilibria associated with the three scenarios in which both manufacturers invest, neither manufacturer invests, and either manufacturer invests can be conditionally achieved, depending on the fixed cost incurred in developing remanufacturing capability and the difference between marginal costs associated with new and remanufactured products. Furthermore, it is found that despite the cost structure changes, remanufacturing investment can expand the two competing manufacturers’ market shares and outweigh the cannibalization effect between new and remanufactured products, resulting in higher profits. Nevertheless, the competing manufacturers may be trapped in a prisoner's dilemma when they both invest in remanufacturing operations. By comparing the environmental impact with and without remanufacturing investment, the result suggests that remanufacturing investment may not be environmental friendly, especially when the cost difference between new and remanufactured products is significant. Finally, the subsidy policy is proven to benefit manufacturers in gaining more profits and promoting the development of the remanufacturing industry, but may cause an unanticipated negative overall outcome on the environment.