Authorization or Outsourcing: Considering the Contrast/Assimilation Effect and Network Externality of Remanufactured Products under Government Subsidy

Yuqing Hu, Lijun Meng (), Jingya Xue and Hongying Xia
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Yuqing Hu: College of Economics and Management, China Jiliang University, Hangzhou 310018, China
Lijun Meng: College of Economics and Management, China Jiliang University, Hangzhou 310018, China
Jingya Xue: College of Economics and Management, China Jiliang University, Hangzhou 310018, China
Hongying Xia: College of Economics and Management, China Jiliang University, Hangzhou 310018, China

Sustainability, 2023, vol. 15, issue 14, 1-27

Abstract: This paper examines the impact of the contrast/assimilation effect and network externality of remanufactured products on remanufacturing mode selection for original equipment manufacturers (OEMs) under government subsidy. We develop a two-period Stackelberg game model in a closed-loop supply chain (CLSC) composed of an OEM and a third-party remanufacturer (TPR) considering two remanufacturing modes: authorization remanufacturing mode and outsourcing remanufacturing mode. The results show the following: (1) The OEM prefers to select authorization when the contrast/assimilation effect and government subsidy level are both relatively low; otherwise, the OEM prefers outsourcing. The TPR always prefers the outsourcing mode. Therefore, a win–win situation between the OEM and the TPR could be achieved through OEM outsourcing remanufacturing when the government raises subsidy levels or the contrast/assimilation effect is relatively obvious. (2) The outsourcing mode is more beneficial in promoting the sales of remanufactured products and is more environmentally friendly, while the authorization mode is better in regards to consumer surplus and social welfare. (3) OEM, TPR and CLSC could benefit from network externality increasing. The stronger contrast effect (assimilation effect) is profitable to the OEM and CLSC (TPR), but hurts the TPR (OEM and CLSC). (4) Government subsidy can significantly reduce consumer spending on remanufactured products. CLSC members encroach government subsidies which are offered to consumers through pricing adjustments. The findings provide managerial implications for OEMs’ remanufacturing mode strategy in the context of the contrast/assimilation effect and network externality of remanufactured products under government subsidy.

Keywords: contrast and assimilation effects; network externality; government subsidy; remanufacturing mode (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
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