Pricing new and remanufactured products under patent protection and government intervention

This study proposes a three-period closed-loop supply chain model framework with remanufacturing, in which an original equipment manufacturer (OEM) sells the new products through the entire selling season, and a remanufacturer collects the used products and sells the remanufactured products in the third period to a group of strategic consumers with green preferences. In the basic model, firms determine their respective prices to pursue profit maximization, considering consumers’ strategic behaviour and green preference. Then, we extend the model by incorporating patent protection and government intervention and investigate their impacts on firms’ operational strategies, profitability, and consumer surplus. Our results show that all the optimal prices increase in the costs of the new and remanufactured products, while the optimal licensing fee strictly decreases in both marginal costs. We further uncover that consumers’ strategic behaviour can alleviate but consumers’ green preference will exacerbate the effects of marginal costs on product prices. Compared with the basic model, under patent protection and government intervention, one can see that government subsidies help more consumers find an ideal product rather than leave the market with nothing. In particular, it boosts sales of the remanufactured product and improves the performance of the remanufacturer’s profitability, although the OEM charges a higher patent-licensing fee. Interestingly, the profit of the OEM also increases in the per-unit government subsidy because the OEM could benefit indirectly from government subsidies through its patent-licensing revenue. Based on the combined effects of patent protection and government intervention, we therefore propose an efficient and easy-to-implement subsidy/tax scheme, which can assist the social planner in encouraging firms to set prices at the level of reaching social welfare maximization.