Strategic Remanufacturing under Competition

Abstract

We investigate firms’ re-manufacturing strategies in the case of a Cournot duopoly. On one hand, re-manufactured products cannibalize sales of new products by the same firm and hurt its profits. On the other, re-manufacturing can be a profitable marketing strategy to target different customer preferences, and provide a larger number of alternative choices to customers. The trade-off between these effects is influenced by competition. We use a model where the demand functions are derived from utility maximization by a representative consumer. This captures preferences and substitution between new products and re-manufactured products. The re-manufacturing strategy is affected by different exogenous factors, such as competition, substitutability, production cost as well as re-manufacturing cost.

Keywords: Operations-Marketing Interface; Pricing; Re-manufacturing; Competition

JEL Classification: C61; M11; M20; M31