T his article provides a data-driven assessment of economic and environmental aspects of remanufacturing for product + service firms. A critical component of such an assessment is the issue of demand cannibalization. We therefore present an analytical model and a behavioral study which together incorporate demand cannibalization from multiple customer segments across the firm's product line. We then perform a series of numerical simulations with realistic problem parameters obtained from both the literature and discussions with industry executives. Our findings show that remanufacturing frequently aligns firms' economic and environmental goals by increasing profits and decreasing the total environmental impact. We show that in some cases, an introduction of a remanufactured product leads to no changes in the new products' prices (positioning within the product line), implying a positive demand cannibalization and a decrease in the environmental impact; this provides support for a heuristic approach commonly used in practice. Yet in other cases, the firm can increase profits by decreasing the new product's prices and increasing sales-a negative effective cannibalization. With negative cannibalization the firm's total environmental impact often increases due to the growth in new production. However, we illustrate that this growth is nearly always sustainable, as the relative environmental impacts per unit and per dollar rarely increase.

Introducing environmental innovations in product and process design can affect the product's cost and demand, as well as the environmental impact in different stages of its life cycle (such as manufacturing and use stages). In this article, we advance understanding on where such design changes can be most effective economically to the firm and examine their corresponding environmental consequences. We consider a profit maximizing firm (newsvendor) deciding on the production quantity as well as its environmentally focused design efforts. We focus our results along the two dimensions of demand characteristics and life‐cycle environmental impact levels, specifically functional vs. innovative products, and higher manufacturing stage environmental impact vs. higher use stage environmental impact. We also discuss the environmental impact of overproduction and how it relates to the different types of products and their salvage options. We find that although the environmental impact per unit always improves when firms use eco‐efficient or demand‐enhancing innovations, the total environmental impact can either increase or decrease due to increased production quantities. We identify the conditions for such cases by looking at the environmentally focused design efforts needed to compensate for the increase in production. We also show that the environmental impact of overproduction plays an important role in the overall environmental impact of the firm. We conclude by applying our model to different product categories.

This paper presents a stylized framework for analyzing the design of government incentives for public interest goods (goods with externalities, such as electric vehicles.) We extend the newsvendor model with pricing to account for the consumption externality inherent in public interest goods and analyze the governments ability to coordinate their pricing and supply through the use of rebates and subsidies. Our model allows for goods with both positive and negative externalities, and considers three government intervention mechanisms: the joint mechanism that uses both subsidies and rebates, and two simplified mechanisms that use only rebates or only subsidies. The goal of the intervention is to coordinate the system in order to achieve the maximal welfare, which in our model consists of the firms profit, consumer surplus, and externality benefit net the government cost. We find that the joint mechanism coordinates the system, but results in a negative subsidy (i.e., a tax) unless the externality is very small. The simplified mechanisms mostly result in positive rebates and subsidies, but generally do not coordinate the system. We apply our model to the case of Chevy Volt, a leading electric vehicle in North America manufactured by General Motors. We estimate all model parameters from industry data and present a comprehensive numerical study that compares the current government incentives with those suggested by our model. We find that while the current incentives are structurally suboptimal, the resultant welfare loss under the rebate-only mechanism is very small, while under the subsidy-only mechanism it is quite large.

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Pricing and quantity decisions are critical to many firms across different industries. We study the joint price/quantity newsvendor model where only a single quantity and price decision is made, such as a fashion or holiday product that cannot be replenished and where the price is advertised nationally and cannot be changed. Demand is uncertain and sensitive to price. We develop a method for easily finding the optimal price and quantity that applies to more general cases than the usual one in which uncertainty is either additive, multiplicative, or a combination of the two. We represent a quantity by its fractile of the probability distribution of demand for a given price. We use a standard approach to approximating a given distribution with a finite number of representative fractiles and assume that these fractile functions are piecewise linear functions of the price. We identify effects that are not usually seen in a joint price/quantity newsvendor model. For example, although the optimal quantity is a decreasing function of the unit cost, the optimal price can be nonmonotone in the unit cost and we shed insight into why. We illustrate that using a simplified structure of demand uncertainty can result in substantially lower profits.pricing, simultaneous production planning, newsvendor model, supply chain management