Price competition with OEM-remanufactured products

Despite environmental and economic advantages of remanufacturing, the potential for cannibalizing the sales of new product by OEM-remanufactured products is a key obstacle for OEMs to remanufacture their end-of-life products. In this paper, we investigate the OEM-remanufacturing strategy and its impacts on price decisions by adopting a game-theoretic framework, where there is competition between a remanufacturer who sells third-party remanufactured products and an OEM who offers new products and chooses whether to introduce OEM-remanufactured products. We formulate consumer valuation for the products in the consideration of consumers’ perceived similarity between the new and OEM-remanufactured products and, moreover, characterize the chain members’ equilibrium pricing behavior concerning the availability of used products for remanufacturing. We elaborate the impacts of the entry of the OEM-remanufactured products on equilibrium results and show that the provision of OEM-remanufactured products is not necessarily harmful to the remanufacturer especially when consumers perceive the less similarity between the OEM’s products. Results of this study intend to provide managerial insights for managers response to the changes in competitive dynamics, consumer characteristics, and cost factors.