On the Influence of Collection Cost on Reverse Channel Configuration

Journal of Business Economics, 2021, 179-213

33 Pages Posted: 8 Jun 2020 Last revised: 13 May 2021

See all articles by Jochen Gönsch

Jochen Gönsch

University of Duisburg-Essen - Mercator School of Management

Nora Dörmann

University of Duisburg-Essen - Faculty of Physics

Date Written: May 8, 2020

Abstract

This paper revisits the impact of collection cost on a manufacturer’s optimal reverse channel choice. A manufacturer who remanufactures his own products has the choice between managing collection of used products himself, let the retailer manage collection or involve a third party company to manage collection. In particular, we consider a convex collection cost function depending on the collection rate. Contrary to previous literature, we show that the manufacturer always prefers retailer-managed collection, independent of collection cost. The retailer will always choose a positive collection rate. If collection cost is above a certain threshold, not all used products will be collected and the manufacturer (almost) collects all channel profits. Third party-managed collection is always dominated. In extensions, we also consider a restriction to equilibria and a minimum collection rate, which may be imposed by regulation. Both extensions may change the reverse channel choice to manufacturer-managed. Moreover, we see that it may be impossible for regulation to increase collection because the profit-maximizing collection rate may already be the highest economically viable one.

Keywords: Closed-loop supply chain, reverse logistics, remanufacturing, channel choice

Suggested Citation

Gönsch, Jochen and Dörmann, Nora, On the Influence of Collection Cost on Reverse Channel Configuration (May 8, 2020). Journal of Business Economics, 2021, 179-213, Available at SSRN: https://ssrn.com/abstract=3598850

Jochen Gönsch (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany
+49 203 379 - 2777 (Phone)
+49 203 379 - 1760 (Fax)

HOME PAGE: http://udue.de/goensch

Nora Dörmann

University of Duisburg-Essen - Faculty of Physics ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

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