The Study Of Auto Parts Remanufacturing Subsidy Policy Under Different Industrial Organization Modes

Industrial organization mode refers the specific manner that firms relate to each other in an industry. As to the industrial organization mode in auto parts remanufacturing industry, it means the specific organization manner of recovering cores, remanufacturing cores and sales of remanufactured products. Currently there're mainly two industrial organization modes in China's auto parts remanufacturing industry, one of which can be called the OEM(Original Equipment Manufacturer) dominant mode, the other one can be called the independent remanufacturer mode. In the OEM dominant mode, automotive OEM or auto-parts OEM take remanufacturing activity directly, recover cores and sell remanufactured products through its own service network, and formulate production plan of new product and remanufactured product in a centralized decision-making manner. In the independent remanufacturer mode, remanufacturing activity is organized by independent remanufacturers, and the production of new product and remanufactured product is taken respectively by OEM and independent remanufacturers in a decentralized decision-making manner. In addition to remanufacturing, refurbishing is also an important manner of reusing worn auto parts. Between remanufacturing and refurbishing, there exists a competition both in the recovery of cores and product sales. Generally speaking, when a consumer buys auto part to repair car, he can choose new product, remanufactured product and refurbished product. According to the practices at home and abroad, providing subsidies for remanufacturing enterprises is one of the important policy choices to promote the development of remanufacturing industry. Then, under the background that in China's auto parts remanufacturing industry there exits two industrial organization modes and three different products which is new product, remanufactured products and refurbished product, what kind of impact the subsidy policy will make on social welfare, how to formulate subsidy policy according to the patterns of different industrial organization modes and different factors related to market and firms, that's a question with important practical significance and theoretical significance.Under the assumption that consumers have different WTP(Willingness To Pay) toward new product, remanufactured product and refurbished product, we deduce the demand functions of the three products above based on consumer utility model. Based on demand functions, in each one of the industrial organization modes referred above, we build the Stackelberg model with OEM as the leading decision-maker when there's no government subsidy, in which OEM would decide production firstly in the first period and then each market player takes production decision accordingly in the second period; and the Stackelberg model with government as the leading decision-maker when there's government subsidy, in which government would decide the subsidy policy firstly and then each market player takes production decision accordingly in the first and second period. Through solving the models we give out the equilibrium product quantity, optimal subsidy and the social welfare under equilibrium condition. Through margin analysis and numerical simulation we study the questions as followings: Whether or not subsidy policy can promote social welfare, namely is subsidy policy effective? If subsidy policy is effective, then how to formulate the optimal subsidy policy according to different factors related to market and firms? How much can the optimal subsidy policy promote social welfare, namely how well does optimal subsidy policy work? Finally, based on the equilibrium results above, we use the method of numerical simulation to compare the market performance under different industrial organization modes, trying to answer in different situations which one of the two industrial organization modes has a better market performance, and how to formulate subsidy policy legitimately.We find that, the effect of subsidy policy to enhance social welfare and correct market failures has a different manifestation in different industrial organization modes; the optimal subsidy and its policy effect, and the market performance of different industrial organization modes is influenced by market related factors and production cost of different products; with the increase of the recovery rate of cores and the share of recovered cores that used for remanufacturing, the optimal subsidy and its policy effect in the OEM dominant mode will decrease, and the market performance in the independent remanufacturer mode will exceed that in OEM dominant mode gradually, sometimes even surpass the market performance of OEM dominant mode with the optimal subsidy. Our study may have guiding significances as following. Firstly, our study can help government to judge when to implement auto parts remanufacturing subsidy policy and when to quit. Secondly, our study can guide government to formulate auto parts remanufacturing subsidy policy reasonably lest inappropriate subsidy harms social welfare. Thirdly, our study can help government to judge in what situations to encourage which one of the remanufacturing industrial organization modes in China's auto parts remanufacturing industry, and how to formulate subsidy policy accordingly.