The entry of remanufactured and refurbished products considering channel powers

Remanufactured and refurbished products have posed challenges to new products in many developing countries. In these countries, remanufactured products are required to meet the quality standards of new products, while the quality of refurbished products is usually lower than that of new and remanufactured products due to the lack of government regulation. Motivated by these observations, this paper develops a game-theoretic model in which an original equipment manufacturer (OEM) offers new products, while a third-party refurbisher (TPF) and a third-party remanufacturer (TPM) provide refurbished and remanufactured products, respectively. The model investigates the TPF’s entry decision and optimal quality level by considering the OEM’s dominant position, and also explores the TPM’s entry decision by considering different channel powers between the TPF and the TPM. Moreover, we examine the effect of channel powers on entry barriers for both the TPF and the TPM, and the optimal pricing decisions and maximum profits of channel members when the new, refurbished and remanufactured products coexist in the market. We find that channel powers between the TPF and the TPM do not influence the TPM’s entry barrier. Moreover, although the entry barrier for the TPM is not lower than that for the TPF, whereas if the TPM enters the market, the TPF’s maximum profit never exceeds the TPM’s maximum profit regardless of channel powers between the TPF and TPM. In addition, when the OEM competes with the TPF who sets a low quality in the market, the effect of the TPM’s entry on the demand for the OEM’s new products depends on channel powers between the TPF and the TPM; specifically, only if the TPF has more channel power than the TPM, the TPM’s remanufactured products completely cannibalize the demand for the OEM’s new products.