Optimal pricing and collection decisions in a two-period closed-loop supply chain considering channel inconvenience

Abstract

Improving recovery efficiency is a key concern for collectors in a closed-loop supply chain (CLSC) with remanufacturing, as customers often consider the inconvenience of recycling channels when returning used products. This issue profoundly affects collectors’ capacity to recover materials. In a two-period CLSC with remanufacturing, including a manufacturer and a retailer, we develop game-theoretical models in the centralized and decentralized scenarios and compare the optimal solutions, consumer surplus, social welfare and environmental impact of different models through analytical and numerical analysis. Our aim is to examine firms’ dynamic pricing strategies and collection investment decisions by considering customers’ perception of channel inconvenience. There are four main findings. Firstly, in the centralized model and the retailer collection model, the decision-maker lowers the retail price in the first period. However, in the competitive collection model, the manufacturer and the retailer raise the wholesale and retail prices in the first period, respectively. Secondly, in the retailer collection model, as the recycling revenue increases, the manufacturer, although not involved in collecting, the profit also increases due to the free-rider behavior. Thirdly, in the competitive collection model, when the remanufacturing cost savings is relatively high, the collection investment of the manufacturer is much larger than that of the retailer, resulting in the retailer failing to collect any product and giving up collecting. Finally, the collection competition improves the total collection rate and environmental performance but reduces the profit of the manufacturer and the retailer, as well as the consumer surplus and social welfare. Therefore, we design a two-part tariff contract to coordinate the decentralized model and effectively improve the performance of the supply chain.