(Georgia Institute of Technology, 2005-11)
Ferguson, Mark E.; Toktay, L. Beril
Manufacturers often face a choice of whether to recover the value in their end-of-life products
through remanufacturing. In many cases, firms choose not to remanufacture, as they are
(rightly) concerned that the remanufactured product will cannibalize sales of the higher-margin
new product. However, such a strategy may backfire for manufacturers operating in industries
where their end-of-life products (cell phones, tires, computers, automotive parts, etc) are
attractive to third-party remanufacturers, who may seriously cannibalize sales of the original
manufacturer. In this paper, we develop models to support a manufacturer’s recovery strategy
in the face of a competitive threat on the remanufactured product market. We first analyze the
competition between new and remanufactured products produced by a monopolist manufacturer
and identify conditions under which the firm would choose not to remanufacture its products.
We then characterize the potential profit loss due to external remanufacturing competition and
analyze two entry-deterrent strategies: remanufacturing and preemptive collection. We find
that a firm may choose to remanufacture or preemptively collect its used products to deter
entry, even when the firm would not have chosen to do so under a pure monopoly environment.
Finally, we discuss conditions under which each strategy is more beneficial.