Manufacturer encroachment in refurbished product supply chains under enhanced service levels: A game-theoretic analysis of partial and full encroachment

We examine a two-tier supply chain of manufacturers and retailers distributing new and refurbished products through conventional channels. Manufacturers encroach on the refurbished product market by establishing new direct sales channels and enhancing service levels to maximize profits. Employing a game theory model, we investigate the optimal equilibrium scenarios, including the basic, partial, and full encroachment scenarios. We analyze the impact of manufacturer encroachment on sales quantity and profits for both manufacturers and retailers. Our findings reveal that partial encroachment has a lower threshold than full encroachment, and manufacturer encroachment consistently expands the market for refurbished products. Under certain conditions, manufacturer encroachment boosts their profits and benefits retailers, thereby alleviating channel conflicts. Surprisingly, retailers help manufacturers swiftly achieve the optimal range for direct selling costs. Once this range is attained, retailers and manufacturers actively compete in the refurbished product market, maintaining their optimal profit levels.