Impacts of government subsidies on pricing and coordination of the dual-channel supply chain with remanufactured products

Abstract

To solve these pricing and channeling issues, we consider a dual-channel supply chain consisting of the manufacturer producing new and remanufactured products simultaneously, the independent retailer selling new products, and the manufacturer selling remanufactured products, then investigates optimal pricing strategies for the new and remanufactured products between the centralized and decentralized decision-making models by applying optimization and game theory. By comparing the two models we find that the optimal prices of the new and remanufactured products not only depend on the government's subsidy level of remanufacturing, but also relate to the unit cost saving of producing remanufactured products with respect to new products and the decision-making methods in the dual-channel supply chain. Meanwhile, it is found that there is also a “double marginalization” in the decentralized situation, thus we coordinate the dual-channel supply chain using a two-part tariff contract. Specifically, only the manufacturer adjusts dynamically the wholesale price and fixed fee within the coordinating contract according to the government's subsidy level of remanufacturing. Finally, we obtain several interesting conclusions from the numerical examples and provide managerial insights and policy implications from the analytical results. In particular, our finding of the economic, social, and environmental benefits of remanufacturing operations managed by the dual-channel supply chain has implications for both academics and managers.