Revenue management in remanufacturing under competition, cannibalization, and customer behavior: EURO2018

Although remanufacturing has good economic potential, many firmsare worried about the eects of cannibalization and competition. Cannibalizationleads to issues in the optimal pricing decision since itaects the new product market. At the same time, the presence ofanother firm selling the same primary product as well as its remanufacturedversion is also an issue for firms, since the firms face externalcompetition and also strive to evolve a reasonable remanufacturingstrategy where the collection of used product is also a factor. Further,customer behavior towards new and remanufactured products determinethe degree of cannibalization and thus aect the optimal prices.Two kinds of customer behavior are observed - an inverted-U-shapedfunction where customers get suspicious when the price is too low, andthe other is a linear function which behaves according to willingness topay. In this study, we develop models to help firms make the strategicdecisions concerning remanufacturing policies under cannibalizationand dierent customer behavior in a competitive setting. We considerduopoly environments with two firms in direct competition selling theirnew and remanufactured products in the same market. We identify theequilibrium decisions and profits for both the firms. We provide sensitivityanalyses and derive general managerial insights.