We consider an original equipment manufacturer (OEM) who faces competition from an independent remanufacturer (IR). The OEM decides the quality of the new product, which also determines the quality of the competing remanufactured product. The OEM and the IR then competitively determine their production quantities. We explicitly characterize how the OEM competes with the IR in equilibrium. Specifically, we show that the OEM relies more on quality as a strategic lever when it has a stronger competitive position (determined by the relative cost and value of new and remanufactured products), and in contrast it relies more heavily on limiting quantity of cores when it has a weaker competitive position. The IR's entry threat as well as its successful entry can decrease the consumer surplus. Furthermore, our results illustrate that ignoring the competition or the OEM's quality choice leads to overestimating benefits of remanufacturing for consumer and social welfare. In addition, we show an IR with either a sufficiently weak competitive position (so the OEM deters entry) or a sufficiently strong one (so the OEM is forced to limit quantity of cores) is desirable for reducing the environmental impact. Comparing our results with the benchmark in which the OEM remanufactures suggests that encouraging IRs to remanufacture in lieu of the OEMs may not benefit the environment. Furthermore, the benchmark illustrates that making remanufacturing more attractive improves the environmental impact when the remanufacturer is the OEM, while worsening it when remanufacturing is done by the IR.

Firms have recently vertically integrated with suppliers to ensure corporate social and environmental responsibility (CSER) in sourcing. We investigate the conditions under which CSER concerns will drive vertical integration, and how actions of nongovernmental organizations (NGOs) impact CSER. This paper is inspired by Taylor Guitars’s acquisition of an ebony mill in Cameroon to ensure CSER. Whereas the majority of the responsible sourcing literature focuses on auditing as a mechanism for addressing CSER, we study vertical integration as an alternative. Our analysis confirms that CSER can be a potential driver of vertical integration aside from other well-known drivers. We analyze game-theoretical models where a firm can vertically integrate to potentially eliminate CSER risks. Two innovative features of our models are demand externalities (namely, a firm’s CSER violation can positively or negatively affect its competitor’s demand) and horizontal sourcing (namely, a vertically integrated firm can sell responsibly sourced supply to a competitor). We show that a firm’s CSER strategy depends on the risk of a CSER violation exposure, the level of demand externalities (positive or negative), and whether horizontal sourcing is feasible. We find that in industries where horizontal sourcing is unlikely, firms stay disintegrated under a low CSER violation exposure risk and vertically integrate under a moderate CSER violation exposure risk. Surprisingly, firms may stay disintegrated under a high CSER violation exposure risk combined with strongly negative demand externalities. In contrast, firms vertically integrate under moderate-to-high CSER violation exposure risk when horizontal sourcing is possible but may not share responsibly sourced supply through horizontal sourcing under strongly positive demand externalities. We show that firms should be conscious about demand externalities and the possibility of horizontal sourcing in the industry when considering vertical integration for CSER. We also provide guidance to NGOs interested in promoting CSER. When horizontal sourcing is unlikely, NGOs should specify both violating and nonviolating firms in their reports, but not over-scrutinize firms; whereas when horizontal sourcing is possible, NGOs should allocate more resources for scrutinizing firms’ CSER violations and create industry-wide violation reports, while avoiding naming of specific firms in their reports. This paper has been accepted for the Manufacturing & Service Operations Management Special Issue on Value Chain Innovations in Developing Economies.

Dual channel distribution benefits upstream manufacturers but may irritate downstream retailers. The channel conflict only seems to aggravate when retailers are put at information disadvantage. We show this need not be the case. (i) We demonstrate upstream private information can improve channel efficiency and consumer surplus. The main mechanism is the offsetting interplay of signaling distortion and double marginalization: with private selling cost, the manufacturer may signal her cost by cutting the wholesale price; the price cut encourages the retailer to buy more, thereby reducing double marginalization and improving channel efficiency. (ii) We qualify the received wisdom. The general insight that cost information asymmetry reduces efficiency does not work in dual‐channel settings. We show incorporating cost information asymmetry can change dual‐channel equilibrium substantially—it can turn the retailer and channel from the victims of manufacturer encroachment to its beneficiaries. Also, we rationalize why the retailer can benefit from his information disadvantage, and when he can gain from the manufacturer’s selling cost improvement, despite retail competition. (iii) We demonstrate our results are robust for other prevailing arrangements, for example, two‐part tariffs, price competition, imperfect substitution, and simultaneous moves. Our results suggest a more nuanced view of manufacturer encroachment: as private cost information can ease channel conflict and improve consumer surplus, previous studies may have overestimated the harm of encroachment. By highlighting the critical role of cost information asymmetry, this study sharpens our understanding of dual‐channel theory and practice.

Problem definition: Servicization is a business strategy to sell the functionality of a product rather than the product itself. It has been touted as an environmentally friendly strategy as it encourages manufacturers to take more responsibility for their products. We study when servicization results in a win-win outcome where it can simultaneously increase a firm’s profits and decrease its environmental impact compared with selling products. Academic/practical relevance: Whereas policy planners are interested in strategies that reduce environmental impact, firms are unlikely to embrace them if they are not profitable. Hence, understanding when servicization results in a win-win outcome is critical both for firms and for policy makers. Methodology: We construct a stylized game-theoretic model that takes into account several key dynamics not accounted for in prior literature. In particular, we allow the servicizing firm to tailor the service to consumers’ needs, endogenize product durability choice, and also use an environmental impact metric that captures the low discretionary use nature of products. Results: For products that have a low use impact relative to their production and disposal impacts, servicization can be a win-win strategy only if the firm has sufficiently high operating efficiency. By contrast, for products that have a high use impact relative to their production and disposal impacts, servicization can be a win-win strategy only if the firm has sufficiently low operating efficiency and the consumer segments are adequately similar. Furthermore, servicization can improve consumer welfare and simultaneously improve profitability and environmental impact only for products with a low relative use impact. Managerial implications: Whether servicization leads to a win-win outcome cannot simply be determined by changes in product durability, as often argued. It critically depends on the firm’s relative operating efficiency, environmental impact of product in its use phase relative to the production and disposal phases, and the similarity of consumer segments. Our results explicitly characterize these relations.

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