Skip to main content

Advertisement

SpringerLink
Log in

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

  • S.I.: RealCaseOR
  • Published:
Annals of Operations Research Aims and scope Submit manuscript

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5

Similar content being viewed by others

Notes

  1. http://www.dss.gov.cn/News_wenzhang.asp?ArticleID=332843.

  2. http://www.chery.cn/brandshow/enterprise/.

  3. http://en.weichai.com/cpyfw/wmdyw/hfwsc/zzz/.

References

  • Agrawal, V. V., Atasu, A., & van Ittersum, K. (2015). Remanufacturing, third-party competition, and consumers’ perceived value of new products. Management Science,61(1), 60–72.

    Google Scholar 

  • Agrawal, V. V., Ferguson, M., & Souza, G. C. (2016). Trade-in rebates for price discrimination and product recovery. IEEE Transactions on Engineering Management,63(3), 326–339.

    Google Scholar 

  • Atasu, A., Guide, V. D. R., & Van Wassenhove, L. N. (2010). Sowhat if remanufacturing cannibalizes my new product sales? California Management Review,52(2), 56–76.

    Google Scholar 

  • Atasu, A., Sarvary, M., & Van Wassenhove, L. N. (2008). Remanufacturing as a marketing strategy. Management Science,54(10), 1731–1746.

    Google Scholar 

  • Basak, D. (2017). Cournot vs. Bertrand under centralised bargaining. Economics Letters,154, 124–127.

    Google Scholar 

  • Chen, L. T., & Wei, C. C. (2012). Multi-period channel coordination in vendor-managed inventory for deteriorating goods. International Journal of Production Research,50(16), 4396–4413.

    Google Scholar 

  • Cisco. (2009). Cisco Refresh: Get the value of Cisco Products at significant savings with fully certified remanufactured equipment. https://www.cisco.com/c/en/us/products/remanufactured.html.

  • Dastidar, K. G. (1997). Comparing Cournot and Bertrand in a homogeneous product market. Journal of Economic Theory,75, 205–212.

    Google Scholar 

  • Debo, L. G., Toktay, L. B., & Van Wassenhove, L. N. (2005). Market segmentation and product technology selection for remanufacturable products. Management Science,51(8), 1193–1205.

    Google Scholar 

  • Esenduran, G., Kemahlıoglu-Ziya, E., & Swaminathan, J. M. (2017). Impact of take-back regulation on the remanufacturing industry. Production and Operations Management,26(5), 924–944.

    Google Scholar 

  • Ferguson, M. E., & Toktay, B. (2006). The effect of competition on recovery strategies. Production and Operations Management,15(3), 351–368.

    Google Scholar 

  • Ferrer, G. (1997). The economics of tire remanufacturing. Resources, Conservation and Recycling,19, 221–255.

    Google Scholar 

  • Ferrer, G., & Swaminathan, J. (2006). Managing new and remanufactured products. Management Science,52(1), 15–26.

    Google Scholar 

  • Ferrer, G., & Swaminathan, J. (2010). Managing new and differentiated remanufactured products. European Journal of Operational Research,203(1), 370–379.

    Google Scholar 

  • Giuntini, R., & Gaudette, K. (2003). Remanufacturing: The next great opportunity for boosting US productivity. Business Horizons,46(6), 41–48.

    Google Scholar 

  • Guide, V. D. R. (2000). Production planning and control for remanufacturing: Industry practice and research needs. Journal of Operations Management,18(4), 467–483.

    Google Scholar 

  • Guide, V. D. R., & Li, J. (2010). The potential for cannibalization of new products sales by remanufactured products. Decision Sciences,41(3), 547–572.

    Google Scholar 

  • Guide, V. D. R., Muyldermans, L., & Van Wassenhove, L. N. (2005). Hewlett-Packard company unlocks the value potential from time sensitive returns. Interfaces,35(4), 281–293.

    Google Scholar 

  • Hackner, J. (2000). A note on price and quantity competition in differentiated oligopolies. Journal of Economic Theory,93, 233–239.

    Google Scholar 

  • Hauser, W. M., & Lund, R. T. (2008). Remanufacturing, operating practices and strategies: Perspectives on the management of remanufacturing businesses in the United States. Research report, Boston University, Boston.

  • Heese, H. S., Cattani, K., Ferrer, G., Gilland, W., & Roth, A. V. (2005). Competitive advantage through take-back of used products. European Journal of Operational Research,164(1), 143–157.

    Google Scholar 

  • Hewlett-Packard. (2014). Ink and toner cartridges. Retrieved from November 24, 2014, http://www8.hp.com/us/en/ads/supplies/overview.html.

  • Kim, C. K., Lavack, A. M., & Smith, M. J. (2001). Consumer evaluation of vertical brand extensions and core brands. Journal of Business Research,52(3), 211–222.

    Google Scholar 

  • Majumder, P., & Groenevelt, H. (2001). Competition in remanufacturing. Production and Operations Management,10(2), 125–141.

    Google Scholar 

  • Mussweiler, T. (2003). Comparison processes in social judgment: Mechanisms and consequences. Psychological Review,110(3), 472–489.

    Google Scholar 

  • Örsdemir, A., Kemahlıoğlu-Ziya, E., & Parlaktürk, A. K. (2014). Competitive quality choice and remanufacturing. Production and Operations Management,23(1), 48–64.

    Google Scholar 

  • Ovchinnikov, A. (2011). Revenue and cost management for remanufactured products. Production and Operations Management,20(6), 824–840.

    Google Scholar 

  • Rozanova, O. (2017). Wholesale prices and Cournot–Bertrand competition. Bulletin of Economic Research,69(4), E12–E18.

    Google Scholar 

  • Seyedesfahani, M. M., Biazaran, M., & Gharakhani, M. (2011). A game theoretic approach to coordinate pricing and vertical co-op advertising in manufacturer–retailer supply chains. European Journal of Operational Research,211(2), 263–273.

    Google Scholar 

  • Singh, N., & Vives, X. (1984). Price and quantity competition in a differentiated duopoly. Rand Journal of Economics,15(4), 546–554.

    Google Scholar 

  • Souza, G. (2013). Closed-loop supply chains: A critical review, and future research. Decision Science,44(1), 7–38.

    Google Scholar 

  • Subramanian, R., & Subramanyam, R. (2008). Key drivers in the market for remanufactured products: Empirical evidence from eBay. Retrieved from December 1, 2008, https://ssrn.com/abstract=1320719.

  • Vorasayan, J., & Ryan, S. M. (2006). Optimal price and quantity of refurbished products. Production and Operations Management,15(3), 369–383.

    Google Scholar 

  • Wang, L., Cai, G., Tsay, A. A., & Vakharia, A. J. (2017). Design of the reverse channel for remanufacturing: Must profit-maximization harm the environment? Production and Operations Management,26(8), 1585–1603.

    Google Scholar 

  • Webster, S., & Mitra, S. (2007). Competitive strategy in remanufacturing and the impact of take-back laws. Journal of Operations Management,25, 1123–1140.

    Google Scholar 

Download references

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).

Author information

Authors and Affiliations

  1. School of Economics and Management, AnHui Normal University, Wuhu, 241002, China

    Chang Fang, Zhuangzhuang You, Yudou Yang & Duomei Chen

  2. Lubar School of Business, University of Wisconsin-Milwaukee, Milwaukee, WI, 53201, USA

    Samar Mukhopadhyay

Authors
  1. Chang Fang
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Zhuangzhuang You
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Yudou Yang
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Duomei Chen
    View author publications

    You can also search for this author in PubMed Google Scholar

  5. Samar Mukhopadhyay
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Chang Fang.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Electronic supplementary material

Below is the link to the electronic supplementary material.

Supplementary material 1 (DOCX 603 kb)

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Fang, C., You, Z., Yang, Y. et al. Is third-party remanufacturing necessarily harmful to the original equipment manufacturer?. Ann Oper Res 291, 317–338 (2020). https://doi.org/10.1007/s10479-019-03445-2

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10479-019-03445-2

Keywords

Search

Navigation