Optimal production, pricing and government subsidy policies for a closed loop supply chain with uncertain returns

Abstract

This paper studies an original equipment manufacturer's (OEM's) optimal production and pricing decisions and the governments optimal subsidy level when the number of used products returning to the OEM is uncertain. The government aims to minimize its total expenditures but also attempt to achieve a given target collection level. We model the problem as an extended price-setting newsvendor model, which simultaneously incorporates supply uncertainty and external government influence. Moreover, we consider separately the cases of stochastic supplies with additive and multiplicative return uncertainty. We show that under the above settings, the governments optimal strategy is to provide only sufficient subsidies that cause its target to be met exactly. The government subsidies will mitigate the cost of remanufacturing and increase the total collection efforts of the government and the manufacturer. Moreover, the return uncertainty lowers both the manufacturers profits and selling price, whereas its effects on the governments optimal subsidies and the manufacturers optimal return efforts are insignificant. Therefore, the manufacturer is worse off but consumers are better off under the conditions of uncertain returns. By comparing the optimal decisions when the government is a central planner with the case of decentralized decision making, or comparing the arrangement in which the government provides subsidies directly to the manufacturer rather than to consumers, we find that the government subsidies would coordinate the supply chain only when its target collection level is high. Moreover, no essential differences exist between providing subsidies directly to the manufacturer and to consumers. Our results are robust under both the additive and multiplicative uncertainty models.

The Impact of Government Subsidies on Private R&D Investment in Different Markets

“…For the examination of the impact of government subsidies on private R&D, game theory and other theorybased models are used less often, but some studies do exist (e.g., [9,28,29]). e closest studies to the research of our paper are [24,30].…”

Government Subsidy Decision‐Making for Waste Tire Recycling under the Coexistence of the Retailer and the Internet Recycling Platform

“…en, Chen et al studied the impact of the uncertain quantity of waste products and found that there is little essential difference between providing subsidies directly to manufacturers and consumers. Coordinating the supply chain requires government subsidies to achieve a higher target collection level [29]. Consider a manufacturer who sells a new product to consumers and examines the optimal recovery strategy and associated decisions by developing three models, further exploring the impacts of product quality and government subsidy on the optimal decisions [30].…”

Optimal recycling price strategy of clothing enterprises based on closed-loop supply chain

“…Recycling and reuse have become a hot topic in the textile and clothing industry. According to the report of circular fashion: China new textile economic outlook issued by China Textile Industry Federation, under the influence of "fast fashion", the global clothing utilization rate has decreased by 36% from 2000 to 2015, and more than 50% of fast fashion clothing will be discarded within one year [2]. Although the original textile production has made significant technological progress in environmental protection, low recovery rate and consumer awareness have an impact on the sustainability level of the textile industry [3].…”

“…On the other hand, clothing reuse is a kind of consumer disposal behavior that has not been fully exploited, but it has an important impact on society. The survey shows that 75% of consumers think sustainability is extremely important; More than one-third of consumers are willing to choose brands with practices in environmental and social improvement, even if it may not be their preferred brand [2]. From the perspective of customer led logic, clothing reuse is a kind of consumer value creation behavior [9].…”