Pricing Decisions For New And Remanufactured Products In Consideration Of Consumer Purchase Behavior

In the background of booming economy,people enjoy the convenient life brought by science and technology and have a rich variety of product choices.However,too frequent product updates could be overwhelming for consumers.As a consequent,many products which are not fully used will face being discarded,leading to the shortage of material resource and the deterioration of ecological environment.In fact,product recycling and remanufacturing is one of the important methods to achieve a sustained,coordinated and healthy development for economy,society and environment.Recently,it is not uncommon to see that many enterprises actively participate in product recycling and remanufacturing activities.For instance,Apple has launched the program named “Apple Trade In”;the famous fashion brand Zara has introduced a new collection called “Join Life”,which is about sustainable development.With economic development and social progress,consumers’ environment-protecting awareness increases.They may also take the green concept of products into account besides the products’ prices when making a purchase.Moreover,with the assist of modern information technology,it is easy for consumers to get access to rich information about products,and therefore consumers could select their desirable products(between new products and remanufactured products)and also time their purchase strategically,to pursue the maximization of consumer’s utility.In other words,consumers are not in a passive position any more,instead they are smart and positive to make purchase decisions strategically.In addition,remanufacturing also relates to the issue on intellectual property protection.Thus,patent licensing is an important factor which should be taken into account in remanufacturers’ decision making,and is also a key concern in the study of closed-loop supply chain with remanufacturing.At the same time,the orderly and prosperous development of the remanufacturing industry is closely related to the active participation and strong support of the government.Against the above background,we adopt the Stackelberg game theory and the backward induction method to investigate the price optimization problem of the profit-maximizing firms(including the original equipment manufacturer(OEM)and the remanufacturer),in the face of a group of strategic consumers with green preference.First,we start from the perspective of the time when the remanufactured products enter the market,and then investigate the optimal pricing strategies of the OEM and the remanufacturer in three different situations.By numerical studies and theoretical methods,we analyze the effects of strategic consumer behavior and consumers’ green preference on the firms’ profit performance and the optimal decisions.Second,we incorporate the trade-in value of eligible used products into our model,and explore how the trade-in value affects consumers’ purchase behavior and consumer surplus,the pricing strategies for new and remanufactured products,and the patent licensing fee.Based on the impacts of remanufacturing,we also discuss how the OEM and the remanufacturer achieve win-win coordination under the trade-in value effects.In the last chapter,we incorporate the patent licensing mechanism and the government subsidies,and study their effects on the manufacturers’ pricing decisions and the consumer surplus.Furthermore,we propose an efficient and easy-to-implement tax/subsidy policy for the government,which can motivate the manufacturers to set the prices at the level where can reach social welfare maximizing.Our main findings are listed as follows:(1)The remanufacturer could yield more profit when it enters the market at the time when the new product is at its growth-maturation phase,especially for consumers with high preference for remanufactured products;and it may also be a good time for the remanufacturer to join the system when the new product is out of the market,due to weaker competition intensity,and providing that some low-end consumers still exist.(2)Under certain conditions,the incorporation of remanufactured products can increase the demand of new products,improve the OEM’s profit performance,and satisfy more consumers’ differentiated needs,leading to higher consumer surplus.(3)As the used products’ trade-in value increases,the prices of both new and remanufactured products increase,but the total market share decreases.Moreover,we find that the remanufacturer generates less profit,the consumer surplus remains basically unchanged,but the OEM becomes better off.Then,by the revenue-sharing contract we designed,there exists a win-win situation between the OEM and the remanufacturer.(4)After the OEM charges the remanufacturer patent licensing fee,all product prices are higher,consumers are worse off,and the total market share decreases.As the licensing fee increases,the remanufacturer’s profit decreases gradually,while the profit of the OEM increases first and decreases thereafter.Therefore,there exists a unique optimal solution of the licensing fee for the OEM to maximize its profit.Moreover,the patent licensing mechanism could weaken the effect of consumer’s green degree on the price decisions of the OEM.(5)Government subsidies can ease the negative effect of price increasement on consumer surplus.In particula r,if the subsidy is sufficiently high,all prices are lower compared to the case under no patent protection and no government intervention,leading to the improvement of consumer surplus and more satisfied consumers.Moreover,as the per-unit subsidy increases,the remanufacturer is better off,while the OEM’s profit decreases first and increases thereafter.In addition,the social welfare maximizing can be achieved under an optimal tax/subsidy policy scheme.Based on the above summary,this paper can not only assist practitioners to make appropriate pricing decisions,but may also make contributions to the theoretical research on consumer purchase behavior.At the same time,our study has potentials to advance the development of the closed-loop supply chain with remanufacturing.