Pricing strategy with quality improvement in a dual collection channel closed-loop supply chain under return uncertainty

A closed-loop supply chain (CLSC) is the process of restoring the used product to useful life. The quantity of returned products has environmental and economic impacts on the CLSC. But, for the implementation of CLSC, one of the major barriers is the uncertain quantity of returned products. Therefore, we examine a two-period CLSC model with a dual collection channel under uncertainty in return quantity. In the model, a third party and a manufacturer compete to collect used products based on the acquisition prices offered to consumers in the second period. During the first period, the manufacturer relies solely on raw materials to produce a new product. In the second period, the manufacturer produces an improved product using both raw materials and used products. Because an improved new version of the product is now available, some consumers decide to return their first-period purchases for the improved product. The problem is formulated as a two-period newsvendor model and solved using the backward induction approach. It is shown that the acquisition price and transfer price offered by the manufacturer increase the quantity of the returned product. The acquisition price offered by the third party first increases and then decreases if the competition between the collectors is low, but the acquisition price increases when the competition is high.