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Is third-party remanufacturing necessarily harmful to the original equipment manufacturer?

Author

Listed:
  • Chang Fang

    (AnHui Normal University)

  • Zhuangzhuang You

    (AnHui Normal University)

  • Yudou Yang

    (AnHui Normal University)

  • Duomei Chen

    (AnHui Normal University)

  • Samar Mukhopadhyay

    (University of Wisconsin-Milwaukee)

Abstract

Conventional wisdom suggests that competition from a third-party remanufacturer lowers the original equipment manufacturer (OEM)’s profits. In this paper, we show that this may not hold for the remanufacturing competition when the presence of remanufactured products affects the consumers’ perceived value of new products. We introduce two new effects of remanufacturing: (1) third-party remanufacturer (TPR)’s remanufactured products shift the consumer valuation of new products upward, and (2) OEM’s remanufactured products shift the valuation downward. By comparing two alternatives of OEM, i.e., take part in remanufacturing or not, we demonstrate a new benefit of TPR competition. It helps the OEM to exploit the valuation of new product customers. Our results suggest that taking part in remanufacturing does not necessarily benefit an OEM. When TPR remanufactured products have low impact on consumers’ perceived value of new products, and only if the remanufacturing cost is sufficiently low, it is profitable for an OEM to engage in remanufacturing. Otherwise, remanufacturing may reduce profits for the OEM and in this case, the OEM should leave remanufacturing to the TPR. Therefore, facing with TPR competition, understanding the interactions between remanufacturing and perceived value of new products is important to an OEM. In addition, we find that low fraction of used products is not always bad for the TPR, and a high willingness-to-pay for the OEM’s remanufactured products may be harmful for the OEM.

Suggested Citation

  • Chang Fang & Zhuangzhuang You & Yudou Yang & Duomei Chen & Samar Mukhopadhyay, 2020. "Is third-party remanufacturing necessarily harmful to the original equipment manufacturer?," Annals of Operations Research, Springer, vol. 291(1), pages 317-338, August.
    • Handle: RePEc:spr:annopr:v:291:y:2020:i:1:d:10.1007_s10479-019-03445-2
    DOI: 10.1007/s10479-019-03445-2
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    2. Zhang, Guangxia & Gong, Yeming & Hong, Xianpei, 2022. "Free rider effect of quality information disclosure in remanufacturing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 166(C).
    3. Yan Zhang & Wen Zhang, 2023. "Optimal pricing and greening decisions in a supply chain when considering market segmentation," Annals of Operations Research, Springer, vol. 324(1), pages 93-130, May.
    4. Zhao, Senlin & You, Zhuangzhuang & Zhu, Qinghua, 2022. "Effects of asymmetric cost information on collection outsourcing of used products for remanufacturing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 162(C).
    5. Chenxu Ke & Bo Yan & Jingna Ji, 2023. "Pricing new and remanufactured products under patent protection and government intervention," Annals of Operations Research, Springer, vol. 324(1), pages 131-161, May.
    6. Alegoz, Mehmet & Kaya, Onur & Bayindir, Z. Pelin, 2021. "A comparison of pure manufacturing and hybrid manufacturing–remanufacturing systems under carbon tax policy," European Journal of Operational Research, Elsevier, vol. 294(1), pages 161-173.

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