Manufacturers’ strategy for introducing remanufactured products under a government subsidy: Introduce or not?

Abstract

With strong government advocacy and encouragement, many manufacturers hope to enter the remanufacturing market. Manufacturers who have entered the remanufacturing market hope to increase their profits through effective decision-making. Using game-theoretic models, this study investigates manufacturers’ conditions for introducing remanufactured products and the production decisions after the introduction by constructing a consumer utility model. Our study demonstrates that manufacturers’ decision-making method directly affects their decision to introduce remanufactured products. If a manufacturer plans to introduce remanufactured products, they should adopt a centralized decision-making method for the two products. Under this decision-making method, when the ratio of the government subsidy to the cost of new products is not too large or too small, the manufacturer can introduce remanufactured products. Additionally, the range of the ratio of the government subsidy to the cost of new products is related to the difference between the ratio of the cost of remanufactured products to that of new products and the substitutability of the remanufactured products. Therefore, when formulating a subsidy, the government should control it within a reasonable range and formulate differentiated subsidy strategies based on different enterprises’ specific conditions to give full play to the benefits of the government subsidy. Moreover, after the manufacturer has introduced remanufactured products, the consumer surplus and manufacturer’s profit increase with the government subsidy. However, social welfare increases only when the government subsidy is within a reasonable range. Furthermore, compared with subsidizing consumers, it is found that subsidizing the manufacturer does not affect their profit, the consumer surplus, and social welfare; however, the range within which the manufacturer can introduce remanufactured products narrows.