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Managing New and Remanufactured Products

Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, California 93943-5103
Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599-3490
gferrer{at}nps.edu
msj{at}unc.edu

We study a firm that makes new products in the first period and uses returned cores to offer remanufactured products, along with new products, in future periods. We introduce the monopoly environment in two-period and multiperiod scenarios to identify thresholds in remanufacturing operations. Next, we focus our attention on the duopoly environment where an independent operator (IO) may intercept cores of products made by the original equipment manufacturer (OEM) to sell remanufactured products in future periods. We characterize the production quantities associated with self-selection and explore the effect of various parameters in the Nash equilibrium. Among other results, we find that if remanufacturing is very profitable, the original-equipment manufacturer may forgo some of the first-period margin by lowering the price and selling additional units to increase the number of cores available for remanufacturing in future periods. Further, as the threat of competition increases, the OEM is more likely to completely utilize all available cores, offering the remanufactured products at a lower price.

Key Words: remanufacturing; duopoly; self-selection; product-line pricing
History: Received: March 1, 2002;

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