Optimal Remanufacturing Certification Contracts in the Electrical and Electronic Industry

Huihui Liu, Xiaohang Yue, Hui Ding and G. Keong Leong
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Huihui Liu: Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102200, China
Xiaohang Yue: Lubar School of Business, University of Wisconsin-Milwaukee, Milwaukee, WI 53211, USA
Hui Ding: School of Foreign Languages, China University of Petroleum, Beijing 102200, China
G. Keong Leong: College of Business Administration & Public Policy, California State University Dominguez Hills, Carson, CA 90747, USA

Sustainability, 2017, vol. 9, issue 4, 1-17

Abstract: While remanufacturing is highly encouraged worldwide, some original equipment manufacturers (OEMs) in the electrical and electronics industry are still not willing to embrace remanufacturing, for fear of expensive investment or the cannibalization of existing products. Meanwhile, third-party remanufacturers’ (TPRs) remanufactured products are developing quickly. Due to quality reasons, consumers usually have a higher preference for OEM-certified remanufactured products than uncertified ones. As such, remanufacturing certification has become a strategy that OEMs can use to benefit from product remanufacturing. Our paper focuses on the remanufacturing certification contract between an OEM and a TPR. Once certified, the TPR makes payments to the OEM. These payment terms will affect their enthusiasm for participating in remanufacturing certification. By establishing game models among an OEM, a certified TPR, and an uncertified TPR, our paper explores three certification contracts, namely, the lump-sum payment, profit-sharing payment, and piece-rate payment. We identify the conditions for the OEM and certified TPR to reach a win-win outcome. Our results show that when TPRs have a high profit margin and there is no significant difference in consumers’ preferences between certified and non-certified remanufacturing channels, the profit-sharing payment contract yields the highest profit; otherwise, the piece-rate payment contract is best for the OEM.

Keywords: electrical and electronics industry; remanufacturing; certification; third-party remanufacturer; lump-sum payment contract; profit-sharing payment contract; piece-rate payment contract (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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