Promoting Remanufacturing through Subsidy and Environment tax : Channel Co-opetition, Incentive Alignment and Regulation Optimization

Recently, government such as India, Canada and China have levied environment tax on production while subsidized the output of remanufactured components to promote resource-saving and pollution reduction. As a result, many original equipment manufacturers (OEMs) have collaborated with the supplier selling remanufactured components (Supplier R), although Supplier R is very likely to develop the self-brand business to improve profitability (referred to as Co-opetitive Scenario). If so, the OEM has the option to source from a supplier selling new components (referred to as Chain-to-chain Scenario). Therefore, it is necessary to identify the collaboration opportunities for Supplier R and the OEM. Based on three stylized models, interestingly, we find the OEM prefers to purchase remanufactured components when (1) its brand advantage is significant; or (2) its brand advantage is limited but the environment tax rate is high; or (3) its brand advantage is limited, the environment tax rate is low, but the subsidy to supplier is high, even if Supplier R has self-brand and competes with the OEM. We then apply the Complete NITRO Algorithm to study the government’s regulation optimization and find that the promotion of remanufacturing can be effective, resulting in a larger dismantling quantity and the OEM’s increased profit