Analysis of advertising and a points-exchange incentive in a reverse supply chain for unwanted medications in households based on Game Theory

Recently, environmental issues have raised an increasing amount of attention, which has led to a quick development of green supply chains. Particularly, the collection and disposal of unwanted medications (UMs) in households have been an increasingly important research topic. However, there is little work on building an effective reverse logistics (RL) system for collecting UMs. For stimulating more collections of UMs, an RL system with a points-exchange incentive scheme and advertising is proposed in this study. Based on Game Theory, this research takes the lead in investigating the effects of these two strategies in a two-echelon supply chain composed of a pharmaceutical manufacturer and a retailer. For the game theoretic analysis, four games are established: non-cooperative, retailer as the Stackelberg leader, manufacturer as the Stackelberg leader, and centralized games. There are three situations in each game, namely, the advertising-effective region, exchange-effective region, and joint-effective region. The optimal strategies of advertising and points-exchange proportion for both members are identified. In both joint-effective and exchange-effective regions, a preferable decentralized supply chain structure is the Nash policy, whereas it does not matter who leads the game in the advertising-effective region. Cooperation is crucial in the model, which results in a larger collection and more profit of the total supply chain. Finally, this study provides managerial implications and some suggestions for future research.