To Cooperate or Not: Evaluating process innovation strategies in battery recycling and product innovation

Abstract

Emerging technology products like retired electric vehicle (EV) batteries encounter technical challenges during the collecting and remanufacturing phase. Process innovation for recycling (PIR) presents an opportunity to improve the efficiency of these product recycling processes. To investigate how upstream and downstream firms formulate optimal PIR strategies under the interaction of product innovation and PIR, and to analyze the impact of this interaction on operational decisions, we construct Stackelberg game models comprising a battery supplier and an EV manufacturer, both of which have the potential to assume leadership roles. The supplier engages in recycling and makes PIR investment decisions: invest independently, outsource it to the manufacturer, or cooperate with the manufacturer. The manufacturer performs product innovation and decides whether to participate in PIR. Our results indicate that cooperation is not always the preferred strategy for both firms and tends to be favored only when PIR investment efficiency is relatively low. Although the supplier engages in remanufacturing, the manufacturer may exert higher PIR efforts. When product innovation and PIR are carried out separately by upstream and downstream firms, the two innovations maintain a complementary relationship, which provides the possibility for manufacturers to offer higher-quality products at lower prices. Furthermore, firms are more inclined to invest in PIR when acting as the supply chain leader. However, the first-mover advantage may turn into a disadvantage under collaboration model, which provides insights for firms not to blindly pursue the leader. The sequential innovation decisions and two-period model settings are further explored as model extensions.