Choosing reverse logistics channel structures for the return of end-of-life products

Abstract

In this paper game theory is applied to maximise profit by identifying the optimal channel to collect and remanufacture used products in an electronic equipment retail network context. Without a detailed method to compute reverse logistics cost, the most profitable channel may not be chosen. Therefore, the main aim of the paper is to realistically model manufacturer, retailer and third-party as three different collection channel options to compete over return rates. A more realistic and detailed method to compute the reverse logistics cost is introduced because it is crucial in determining the most profitable channel. In the non-cooperative and cooperative version of the game the manufacturer gains the highest and the retailer the second highest payoff, since both players benefit from selling new products. Furthermore, the third-party can turn the collection of used products into a successful business by using synergy effects between different clients within the logistics network. There is consistency between the results of the non-cooperative and the cooperative version of the game. Moreover, if fines are imposed externally (for example by legislation), the best option is to cooperate in the grand coalition. Subcontracting the third-party yields the highest payoffs due to their lowest reverse logistics cost.