Cooperative Promotion and Wholesale Price Discount Incentives in a Closed-Loop Supply Chain with Dynamic Returns

Abstract

The closed-loop supply chain (CLSC) focusing on product recycling is getting more and more attention. The question of how to motivate CLSC participants to implement product recycling effectively has come into focus. We study the optimal strategy of a two-echelon CLSC under different incentive mechanisms, characterize the return rate in the form of a state equation for its dynamic behavior and construct a closed-loop supply chain dynamic model. Subsequently, we discuss two incentives—the cooperative promotion incentive and wholesale price discount incentive—based on the no-incentive game and investigate the optimal strategy, steady-state return rate, and revenue of each CLSC player in the three scenarios. Then, the choice of incentives by manufacturers and retailers under different scenarios is determined by comparative analysis. The results indicate that retailers always favor the cooperative promotion incentive. For manufacturers, the wholesale price discount incentive is more advantageous only when the recycling efforts outperform retailers’ promotion efforts in unit cost. In most other cases, the cooperative promotional incentive is more popular since it will generate more revenue for each participant and the entire supply chain. Moreover, there is a Profit-Pareto-improvement region when the CLSC implements the cooperative promotion incentive.