Optimal product recovery strategies under competition

Growing environmental concerns and stricter regulations drive Original Equipment Manufacturers (OEMs) to increasingly adopt remanufacturing and recycling. Meanwhile, OEMs are confronted with competition of Independent Remanufacturers (IRs). We study the optimal product recovery strategy (remanufacturing and recycling quantity). The OEM and IR each decide on the quantity of used products to collect, which the IR uses for remanufacturing, while the OEM determines how much to allocate to remanufacturing, recycling, or a combination of both. We characterize the optimal product recovery strategy using the trade-off between collection, remanufacturing and recycling cost, and market demand, and show the impact of OEM-IR competition. We investigate the conditions under which a hybrid strategy (where the OEM simultaneously engages in remanufacturing and recycling) is preferable to a pure strategy (involving only remanufacturing or only recycling). We find that a higher collection cost increases the likelihood of remanufacturing for both the OEM and IR and that competition increases the overall collection rate of used products. In addition, we also examine the impact of optimal product recovery strategies on the environment and how competition affects profits and environmental performance. We find that while competition always reduces the OEM’s profit, it can still benefit the environment. Our research offers managers and policymakers a deeper understanding of how competition and different exogenous parameters impact product recovery strategies.