The Value of Competition in Remanufacturing

In line with the general perception among practitioners, the extant literature on remanufacturing shows that an OEM’s profit suffers when a third-party remanufacturer competes with the OEM’s remanufacturing operations. Accordingly, the literature recommends ways to deter third-party competition. However, competition for acquisition of used products (or product cores) can influence the price of new products because strategic (forward-looking) consumers consider the resale
value of new products when making their purchase decisions. In our model, an OEM offers a new
product that depreciates over time. The OEM has an opportunity to acquire and remanufacture depreciated used products and remarket the remanufactured products. A third-party remanufacturer also competes with the OEM for acquisition and remanufacturing of the used products. We investigate the impact of competition from the third-party remanufacturer on the OEM’s profit in the presence of strategic consumers. Of specific interest is whether competition from the third-party remanufacturer is always undesirable for the OEM when they face strategic consumers