The Effect of Competition on Recovery Strategies (ed.3)

Manufacturers often face a choice of whether to recover the value in their end-of-life productsthrough remanufacturing. In many cases, firms choose not to remanufacture, as they are(rightly) concerned that the remanufactured product will cannibalize sales of the higher-marginnew product. However, such a strategy may backfire for manufacturers operating in industrieswhere their end-of-life products (cell phones, tires, computers, automotive parts, etc) areattractive to third-party remanufacturers, who may seriously cannibalize sales of the originalmanufacturer. In this paper, we develop models to support a manufacturer’s recovery strategyin the face of a competitive threat on the remanufactured product market. We first analyze thecompetition between new and remanufactured products produced by a monopolist manufacturerand identify conditions under which the firm would choose not to remanufacture its products.We then characterize the potential profit loss due to external remanufacturing competition andanalyze two entry-deterrent strategies: remanufacturing and preemptive collection. We findthat a firm may choose to remanufacture or preemptively collect its used products to deterentry, even when the firm would not have chosen to do so under a pure monopoly environment.Finally, we discuss conditions under which each strategy is more beneficial.