Harnessing the power of module markets for effective product recovery strategies

Abstract This paper investigates how product modularity affects a manufacturer's recovery strategy by constructing two trade‐in models: one with a module market and another without. Our results reveal that opening a module market is not always profitable for the manufacturer, except when the module production cost is extremely low. When opening it is less profitable, the manufacturer can boost profits by raising the module price, increasing salvage value, and reducing costs through remanufacturing. Regarding collection quantity, our findings reveal that a module market, particularly with high module costs and durability, increases trade‐in quantity, challenging the conventional expectations of market share erosion.