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Competition in Remanufacturing with Asymmetric Demand Information

Author

Listed:
  • Yaqin Sun

    (College of Business, Lehigh University, Bethlehem, PA 18015, USA)

  • Wenjing Shen

    (LeBow College of Business, Drexel University, Philadelphia, PA 19104, USA)

  • Jiacan Li

    (Raymond A. Mason School of Business, College of William & Mary, Williamsburg, VA 23185, USA)

  • Yi Liao

    (School of Business Administration, Southwestern University of Finance and Economics, Chengdu 610074, China)

Abstract

This paper examines remanufacturing decisions in the context of outsourcing, which have important implications for environmental and economic sustainability. Specifically, we model the competition between an experienced Original Equipment Manufacturer (OEM) and an emerging Independent Remanufacturer (IR). The OEM can decide the manufacturing quantities of a brand-new product, and the IR can collect the OEM’s used products and remanufacture them for resale. The information structure is asymmetric, as only the OEM knows the market size. We identify the equilibrium quantities of both firms, which are shown to be strongly influenced by the IR’s cost efficiency and the consumers’ willingness to pay for the IR’s products. Asymmetric information also plays an important role. Is it always better to hide information? Interestingly, the OEM makes the most profit when the IR has full information on the market size. We find that when the market size is high, the OEM’s and IR’s production and encroachment decisions are the same as when both parties have equal information. The OEM also does not benefit from hiding market information from the IR when the market size is low. Indeed, if the IR’s cost efficiency is moderate and the market size is low, the OEM’s profits are actually hurt by hiding market information. Here, the diminished profits from hiding market information arises from the OEM’s substantially reduced production quantity to prevent IR encroachment. The OEM’s production quantity is higher if the OEM shares market information and the IR encroaches on the market. Thus, by sharing information, the OEM’s benefit gained from increased production quantity outweighs the cost of losing its monopoly. Additionally, consumer surplus increases when the IR engages in remanufacturing, while social surplus increases only when either the OEM’s or IR’s product is strongly favored. Even if the IR does not engage in remanufacturing, the resulting OEM monopoly can still lead to a higher environmental impact under certain market conditions. This arises when the OEM lowers production quantities when the IR encroaches on the market, thereby improving the overall environmental impact. Therefore, policymakers seeking to improve environmental and economic sustainability by encouraging IRs must consider these complex competition dynamics and consumer preferences, as they indirectly influence OEMs’ production decisions.

Suggested Citation

  • Yaqin Sun & Wenjing Shen & Jiacan Li & Yi Liao, 2024. "Competition in Remanufacturing with Asymmetric Demand Information," Sustainability, MDPI, vol. 16(2), pages 1-29, January.
  • Handle: RePEc:gam:jsusta:v:16:y:2024:i:2:p:471-:d:1313493
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    References listed on IDEAS

    as
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