Strategic decision making under subscription-based contracts for remanufacturing

Manufacturing firms globally have adopted various environmental sustainability practices, not only because of stakeholder pressure, but also because they see positive returns from their investments in measures towards these. Remanufacturing is one such activity, which has increasingly garnered focus of both practitioners and academia. Motivated by the emergent phenomenon in the remanufacturing industry, in this paper, we study competition and collaboration between an OEM and remanufacturer under subscription-based contracts. Our problem is motivated by the initiatives of firms which have undertaken innovative ways to collaborate with remanufacturers under competition. We study two subscription-based contracts namely, (i) a lump-sum pay and per-unit fee contract, and, (ii) a revenue sharing and lump-sum pay contract and analyze the strategic decisions of the players in these contracts. On comparison of equilibrium values, we find that the collection effort of the remanufacturer under the lump-sum pay and per-unit fee contract is lower than the case of competition (base case), whereas the collection effort is higher under the revenue sharing and lump-sum pay contract (under certain bounds). We also find that the contracts lead to higher prices whereas the product design value is lower in contracts than the base case (under certain bounds). The study serves as an important building block for research in contract design between OEMs and remanufacturers.