Effect of Government Intervention and Trade-ins on Remanufacturing System


Student thesis: Doctoral Thesis

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Awarding Institution
  • Kwai Sang CHIN (Supervisor)
  • Xianjia Wang (External person) (External Supervisor)
Award date13 Jun 2018


Remanufacturing is the process of disassembling used products, inspecting and reworking the components, and using them in new products manufacturing. From the practices being followed in Europe and the United States, although most technical barriers have been gradually resolved, market sales of remanufactured products are still discouraging because of lack of comprehension about remanufactured products and cognitive prejudice. This has limited the enthusiasm of enterprises towards participating in remanufacturing. As for China, the market for remanufactured products is still in an early stage. It is clearly necessary to stimulate remanufacturing industries via some incentives.

This thesis studies the effect of government intervention and trade-ins on remanufacturing system, aiming how to promote remanufacturing activities. Firstly, we research the role of government intervention in stimulating remanufacturing activities, specifically about the optimal subsidy option for government and the proper government tax based on product design. Next, we investigate autonomous trade-in strategies by enterprises without government intervention. This thesis proposes a three-step approach to these different cases: (1) identify clearly the specific problem, corresponding assumptions and demand functions, (2) establish models for solving these problems and make equilibrium decisions, and (3) analyze optimal decisions by conducting numerical studies to verify the results and analyze effects of key factors on the equilibrium results.

Firstly, this thesis examines the effect of government subsidy as a means to promote remanufacturing activities and identifies the optimal subsidy option in remanufacturing system with production budget. We consider three subsidy options: subsidy only to remanufacturer, subsidy only to consumers, and subsidy shared by remanufacturer and consumers. We find that the introduction of government subsidy always increases remanufacturing activities. We also find that the three subsidy options have the same effect on equilibrium results except for equilibrium price of remanufactured products when remanufacturing is not constrained by capital; effects of the three subsidy options on equilibrium results are different when remanufacturing is constrained by capital.

Secondly, this thesis identifies the conditions under which the OM will choose high remanufacturability during product design. We formulate a two-period model in which one OM decides the remanufacturability level of products in product design in the first period, and one remanufacturer enters product market to compete with the OM in the second period. The OM can control the supply of used remanufacturable products by changing the remanufacturability level in product design. Making use of game theory, we derive equilibrium decisions of the OM and remanufacturer in two scenarios that collection is unconstrained or constrained, and derive conditions under which the OM will prefer high remanufacturability.

Thirdly, this thesis identifies the conditions to be satisfied by the manufacturer and the retailer to implement trade-in strategies voluntarily. We consider two channel formats. The first one is traditional retail channel where the retailer sells products to customers and provides trade-in rebate to old customers. The second one is a dual-channel closed-loop supply chain structure where a manufacturer sells to a retailer as well as on a direct online channel, and they provide trade-in rebates to old customers, respectively. We construct the traditional retail channel model and the dual-channel model under two scenarios without and with trade-in to determine conditions to be satisfied by the manufacturer and the retailer to implement trade-in strategies voluntarily in the two channel formats, respectively. We derive the equilibrium prices and optimal trade-in rebates for the manufacturer and the retailer, and derive the conditions to be met by the manufacturer and retailer to implement voluntary trade-in strategies in the two channel models. We also compare trade-in strategies in the traditional retail channel as well as the dual-channel, from the perspective of trade-in quantities and enterprises’ profits in order to identify which channel structure is better as for trade-in policy.

The major contributions of this thesis can be summarized as follows: (1) the optimal government subsidy option for remanufacturing with production budget is proposed, (2) the proper government’s production tax under which the OM will choose high remanufacturability in product design is identified, and (3) the conditions which need to be met for the manufacturer and the retailer to implement trade-in strategies voluntarily via the traditional retail channel and the dual-channel are identified.