Optimal return and rebate mechanism in a closed-loop supply chain game

Talat S. Genc, Pietro De Giovanni
2018 European Journal of Operational Research  
Within a Closed-loop Supply Chain (CLSC) framework we study several consumer return behaviors for the used products which are based on the product prices and rebates. Consumers evaluate the rebate they receive as well as the price of the new product before deciding whether to dump a return. Therefore, the number of used products returned is examined under two types of rebates: a ...xed rebate and a variable rebate. We search for the optimal rebate mechanism and ...nd that the CLSC pro...ts are
more » ... igher under an variable rebate policy. This ...nding justi...es the industry practices that employ a rebate mechanism based on both the value and the price of used item. We o¤er two types of solution concepts to the CLSC games: open-loop Stackelberg solution and Markov perfect Stackelberg solution, which are commonly employed in the dynamic games literature. While we mainly employ Markovian equilibrium, we also allow ...rms to utilize open-loop strategies so as to assess the impact of precommitment on the market outcomes. Therefore, we o¤er a comprehensive analysis of all possible market equilibrium solutions under di¤erent strategic considerations and the commitment deliberations. We show that under the ...xed rebate regime open-loop solution coincides with Markov perfect solution. Furthermore, we show how consumer return behavior impacts the dynamic nature of the game. We ...nd that the time frame is irrelevant if ...rms o¤er a ...xed rebate. In contrast, the game will be fully dynamic when ...rms o¤er a variable rebate.
doi:10.1016/j.ejor.2018.01.057 fatcat:p4cgmckobjdgjgum7jj6x2vp4u