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

  • Chang FangEmail author
  • Zhuangzhuang You
  • Yudou Yang
  • Duomei Chen
  • Samar Mukhopadhyay
S.I.: RealCaseOR
First Online:
  • 32 Downloads

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.

Keywords

Remanufacturing Third-party competition Consumers’ perceived value Stackelberg game 
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Notes

Acknowledgements

This work is supported by the National Natural Science Foundation of China (No. 71801005), the Natural Science Foundation of Anhui Province (Nos. 1808085QG227, 1608085MG152), the Innovation Project for Oversea Scholars (2019LCX007), and the Social Sciences Foundation of Anhui Province (No. AHSKQ2016D28).

Supplementary material

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Supplementary material 1 (DOCX 603 kb)

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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.School of Economics and ManagementAnHui Normal UniversityWuhuChina
  2. 2.Lubar School of BusinessUniversity of Wisconsin-MilwaukeeMilwaukeeUSA

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