# American Institute of Mathematical Sciences

doi: 10.3934/jimo.2022103
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## Pricing decisions for closed-loop supply chains with technology licensing and carbon constraint under reward-penalty mechanism

 1 College of Management, Shenzhen University, Shenzhen 518060, China 2 School of Management, Huazhong University of Science and Technology, Wuhan 430074, China

*Corresponding author: Yanting Huang (ythuang4028@163.com)

Received  June 2021 Revised  December 2021 Early access June 2022

Fund Project: The first author is supported by the National Natural Science Foundation of China (NSFC) under Grant 72001147

This paper investigates the effect of the reward-penalty mechanism in a closed-loop supply chain with a manufacturer, a distributor and a third party under technology licensing and carbon constraints. There remanufacturing scenarios are developed, namely (1) the manufacturer is engaged in remanufacturing activities, (2) the manufacturer subcontracts the distributor to conduct remanufacturing, and (3) the third party undertakes remanufacturing with the manufacturer's authorization. We apply the Stackelberg game to derive the equilibrium strategies of each scenario with and without reward-penalty mechanism. We find that, the implementation of the reward-penalty mechanism is profitable to remanufacturing activities. If producing remanufactured products doesn't effectively reduce carbon emissions, chain members have no incentive to undertake collecting and remanufacturing activities. The manufacturer prefers to license other chain members to remanufacture because more cost savings from remanufacturing and more rewards from government can achieve in distributor-remanufacturing and third-party remanufacturing scenarios.

Citation: Yanting Huang, Zongjun Wang. Pricing decisions for closed-loop supply chains with technology licensing and carbon constraint under reward-penalty mechanism. Journal of Industrial and Management Optimization, doi: 10.3934/jimo.2022103
##### References:
 [1] M. Alegoz, O. Kaya and Z. P. Bayindir, A comparison of pure manufacturing and hybrid manufacturing remanufacturing systems under carbon tax policy, European Journal of Operational Research, 294 (2021), 161-173.  doi: 10.1016/j.ejor.2021.01.018. [2] A. Atasu, M. Sarvary and L. N. Van Wassenhove, Remanufacturing as a marketing strategy, Management Science, 54 (2008), 1731-1746. [3] A. Atasu and L. N. Van Wassenhove, An operations perspective on product take-back legislation for e-waste: Theory, practice, and research needs, Production and Operations Management, 21 (2012), 407-422. [4] I. S. Bakal and E. Akcali, Effects of random yield in remanufacturing with price-sensitive supply and demand, Production and Operations Management, 15 (2006), 407-420.  doi: 10.1287/opre.1030.0090. [5] E. Bazan, M. Y. Jaber and S. Zanoni, Carbon emissions and energy effects on a two-level manufacturer-retailer closed-loop supply chain model with remanufacturing subject to different coordination mechanisms, International Journal of Production Economics, 183 (2017), 394-408. [6] Q. Chai, Z. Xiao, K.-H. Lai and G. Zhou, Can carbon cap and trade mechanism be beneficial for remanufacturing?, International Journal of Production Economics, 203 (2018), 311-321. [7] Y. Chen, B. Li, G. Zhang and Q. Bai, Quantity and collection decisions of the remanufacturing enterprise under both the take-back and carbon emission capacity regulations, Transportation Research Part E: Logistics and Transportation Review, 141 (2020), 102032. [8] N. K. Dev, R. Shankar and A. Choudhary, Strategic design for inventory and production planning in closed-loop hybrid systems, International Journal of Production Economics, 183 (2017), 345-353. [9] P. De Giovanni and G. Zaccour, A two-period game of a closed-loop supply chain, European Journal of Operational Research, 232 (2014), 22-40.  doi: 10.1016/j.ejor.2013.06.032. [10] P. De Giovanni, P. V. Reddy and G. Zaccour, Incentive strategies for an optimal recovery program in a closed-loop supply chain, European Journal of Operational Research, 249 (2016), 605-617.  doi: 10.1016/j.ejor.2015.09.021. [11] F. Dong, B. Yu, T. Hadachin, Y. Dai, Y. Wang, S. Zhang and R. Long, Drivers of carbon emission intensity change in China, Resources, Conservation and Recycling, 129 (2018), 187-201. [12] G. Esenduran, E. Kemahlioglu-Ziya and J. M. Swaminathan, Take-back legislation: Consequences for remanufacturing and environment, Decision Sciences, 47 (2016), 219-256. [13] D. Hammond and P. Beullens, Closed-loop supply chain network equilibrium under legislation, European Journal of Operational Research, 183 (2007), 895-908. [14] J. Heydari, K. Govindan and A. Jafari, Reverse and closed loop supply chain coordination by considering government role, Transportation Research Part D: Transport and Environment, 52 (2017), 379-398. [15] X. Hong, K. Govindan, L. Xu and P. Du, Quantity and collection decisions in a closed-loop supply chain with technology licensing, European Journal of Operational Research, 256 (2017), 820-829.  doi: 10.1016/j.ejor.2016.06.051. [16] Y. Huang and Z. Wang, Closed-loop supply chain models with product take-back and hybrid remanufacturing under technology licensing, Journal of Cleaner Production, 142 (2017), 3917-3927. [17] Y. Huang and Z. Wang, Information sharing in a closed-loop supply chain with technology licensing, International Journal of Production Economics, 191 (2017), 113-127. [18] Z. Miao, H. Mao, K. Fu and Y. Wang, Remanufacturing with trade-ins under carbon regulations, Computers & Operations Research, 89 (2018), 253-268.  doi: 10.1016/j.cor.2016.03.014. [19] S. Minner and G. P. Kiesmiller, Dynamic product acquisition in closed loop supply chains, International Journal of Production Research, 50 (2012), 2836-2851. [20] S. Mitra and S. Webster, Competition in remanufacturing and the effects of government subsidies, International Journal of Production Economics, 111 (2008), 287-298. [21] N. Oraiopoulos, M. E. Ferguson and L. B. Toktay, Relicensing as a secondary market strategy, Management Science, 58 (2012), 1022-1037. [22] A. Örsdemir, E. Kemahlioǧu-Ziya and A. K. Parlaktürk, Competitive quality choice and remanufacturing, Production and Operations Management, 23 (2014), 48-64. [23] S. Panda, N. M. Modak and L. E. Cárdenas-Barrón, Coordinating a socially responsible closed-loop supply chain with product recycling, International Journal of Production Economics, 188 (2017), 11-21. [24] M. Radhi and G. Zhang, Optimal configuration of remanufacturing supply network with return quality decision, International Journal of Production Research, 54 (2015), 1487-1502. [25] R. C. Savaskan, S. Bhattacharya and L. N. Van Wassenhove, Closed-loop supply chain models with product remanufacturing, Management Science, 50 (2004), 239-252. [26] X. Wang, Y. Zhu, H. Sun and F. Jia, Production decisions of new and remanufactured products: Implications for low carbon emission economy, Journal of Cleaner Production, 171 (2018), 1225-1243. [27] Q. Wang, S. Li and Z. Pisarenko, Modeling carbon emission trajectory of China, US and India, Journal of Cleaner Production, 258 (2020), 120723. [28] W. Wang, Y. Zhang, Y. Li, X. Zhao and M. Cheng, Closed-loop supply chains under reward-penalty mechanism: Retailer collection and asymmetric information, Journal of Cleaner Production, 142 (2017), 3938-3955. [29] C.-H. Wu, Product-design and pricing strategies with remanufacturing, European Journal of Operational Research, 222 (2012), 204-215.  doi: 10.1016/j.ejor.2012.04.031. [30] J. Xu, C. T. Ng and T. C. E. Cheng, Remanufacturing strategies under product take-back regulation, International Journal of Production Economics, 235 (2021), 108091. [31] S. Zhao, Q. Zhu and L. Cui, A decision-making model for remanufacturers: Considering both consumers' environmental preference and the government subsidy policy, Resources, Conservation and Recycling, 128 (2018), 176-186. [32] X. M. Zhang, Q. W. Li, Z. Liu and C. T. Chang, Optimal pricing and remanufacturing mode in a closed-loop supply chain of WEEE under government fund policy, Computers & Industrial Engineering, 151 (2021), 106951. [33] Z.-B. Zou, J.-J. Wang, G.-S. Deng and H. Chen, Third-party remanufacturing mode selection: Outsourcing or authorization?, Transportation Research Part E: Logistics and Transportation Review, 87 (2016), 1-19.

show all references

##### References:
 [1] M. Alegoz, O. Kaya and Z. P. Bayindir, A comparison of pure manufacturing and hybrid manufacturing remanufacturing systems under carbon tax policy, European Journal of Operational Research, 294 (2021), 161-173.  doi: 10.1016/j.ejor.2021.01.018. [2] A. Atasu, M. Sarvary and L. N. Van Wassenhove, Remanufacturing as a marketing strategy, Management Science, 54 (2008), 1731-1746. [3] A. Atasu and L. N. Van Wassenhove, An operations perspective on product take-back legislation for e-waste: Theory, practice, and research needs, Production and Operations Management, 21 (2012), 407-422. [4] I. S. Bakal and E. Akcali, Effects of random yield in remanufacturing with price-sensitive supply and demand, Production and Operations Management, 15 (2006), 407-420.  doi: 10.1287/opre.1030.0090. [5] E. Bazan, M. Y. Jaber and S. Zanoni, Carbon emissions and energy effects on a two-level manufacturer-retailer closed-loop supply chain model with remanufacturing subject to different coordination mechanisms, International Journal of Production Economics, 183 (2017), 394-408. [6] Q. Chai, Z. Xiao, K.-H. Lai and G. Zhou, Can carbon cap and trade mechanism be beneficial for remanufacturing?, International Journal of Production Economics, 203 (2018), 311-321. [7] Y. Chen, B. Li, G. Zhang and Q. Bai, Quantity and collection decisions of the remanufacturing enterprise under both the take-back and carbon emission capacity regulations, Transportation Research Part E: Logistics and Transportation Review, 141 (2020), 102032. [8] N. K. Dev, R. Shankar and A. Choudhary, Strategic design for inventory and production planning in closed-loop hybrid systems, International Journal of Production Economics, 183 (2017), 345-353. [9] P. De Giovanni and G. Zaccour, A two-period game of a closed-loop supply chain, European Journal of Operational Research, 232 (2014), 22-40.  doi: 10.1016/j.ejor.2013.06.032. [10] P. De Giovanni, P. V. Reddy and G. Zaccour, Incentive strategies for an optimal recovery program in a closed-loop supply chain, European Journal of Operational Research, 249 (2016), 605-617.  doi: 10.1016/j.ejor.2015.09.021. [11] F. Dong, B. Yu, T. Hadachin, Y. Dai, Y. Wang, S. Zhang and R. Long, Drivers of carbon emission intensity change in China, Resources, Conservation and Recycling, 129 (2018), 187-201. [12] G. Esenduran, E. Kemahlioglu-Ziya and J. M. Swaminathan, Take-back legislation: Consequences for remanufacturing and environment, Decision Sciences, 47 (2016), 219-256. [13] D. Hammond and P. Beullens, Closed-loop supply chain network equilibrium under legislation, European Journal of Operational Research, 183 (2007), 895-908. [14] J. Heydari, K. Govindan and A. Jafari, Reverse and closed loop supply chain coordination by considering government role, Transportation Research Part D: Transport and Environment, 52 (2017), 379-398. [15] X. Hong, K. Govindan, L. Xu and P. Du, Quantity and collection decisions in a closed-loop supply chain with technology licensing, European Journal of Operational Research, 256 (2017), 820-829.  doi: 10.1016/j.ejor.2016.06.051. [16] Y. Huang and Z. Wang, Closed-loop supply chain models with product take-back and hybrid remanufacturing under technology licensing, Journal of Cleaner Production, 142 (2017), 3917-3927. [17] Y. Huang and Z. Wang, Information sharing in a closed-loop supply chain with technology licensing, International Journal of Production Economics, 191 (2017), 113-127. [18] Z. Miao, H. Mao, K. Fu and Y. Wang, Remanufacturing with trade-ins under carbon regulations, Computers & Operations Research, 89 (2018), 253-268.  doi: 10.1016/j.cor.2016.03.014. [19] S. Minner and G. P. Kiesmiller, Dynamic product acquisition in closed loop supply chains, International Journal of Production Research, 50 (2012), 2836-2851. [20] S. Mitra and S. Webster, Competition in remanufacturing and the effects of government subsidies, International Journal of Production Economics, 111 (2008), 287-298. [21] N. Oraiopoulos, M. E. Ferguson and L. B. Toktay, Relicensing as a secondary market strategy, Management Science, 58 (2012), 1022-1037. [22] A. Örsdemir, E. Kemahlioǧu-Ziya and A. K. Parlaktürk, Competitive quality choice and remanufacturing, Production and Operations Management, 23 (2014), 48-64. [23] S. Panda, N. M. Modak and L. E. Cárdenas-Barrón, Coordinating a socially responsible closed-loop supply chain with product recycling, International Journal of Production Economics, 188 (2017), 11-21. [24] M. Radhi and G. Zhang, Optimal configuration of remanufacturing supply network with return quality decision, International Journal of Production Research, 54 (2015), 1487-1502. [25] R. C. Savaskan, S. Bhattacharya and L. N. Van Wassenhove, Closed-loop supply chain models with product remanufacturing, Management Science, 50 (2004), 239-252. [26] X. Wang, Y. Zhu, H. Sun and F. Jia, Production decisions of new and remanufactured products: Implications for low carbon emission economy, Journal of Cleaner Production, 171 (2018), 1225-1243. [27] Q. Wang, S. Li and Z. Pisarenko, Modeling carbon emission trajectory of China, US and India, Journal of Cleaner Production, 258 (2020), 120723. [28] W. Wang, Y. Zhang, Y. Li, X. Zhao and M. Cheng, Closed-loop supply chains under reward-penalty mechanism: Retailer collection and asymmetric information, Journal of Cleaner Production, 142 (2017), 3938-3955. [29] C.-H. Wu, Product-design and pricing strategies with remanufacturing, European Journal of Operational Research, 222 (2012), 204-215.  doi: 10.1016/j.ejor.2012.04.031. [30] J. Xu, C. T. Ng and T. C. E. Cheng, Remanufacturing strategies under product take-back regulation, International Journal of Production Economics, 235 (2021), 108091. [31] S. Zhao, Q. Zhu and L. Cui, A decision-making model for remanufacturers: Considering both consumers' environmental preference and the government subsidy policy, Resources, Conservation and Recycling, 128 (2018), 176-186. [32] X. M. Zhang, Q. W. Li, Z. Liu and C. T. Chang, Optimal pricing and remanufacturing mode in a closed-loop supply chain of WEEE under government fund policy, Computers & Industrial Engineering, 151 (2021), 106951. [33] Z.-B. Zou, J.-J. Wang, G.-S. Deng and H. Chen, Third-party remanufacturing mode selection: Outsourcing or authorization?, Transportation Research Part E: Logistics and Transportation Review, 87 (2016), 1-19.
Closed-loop Supply Chain Models with Remanufacturing
The acquisition price versus carbon emission discount factor of remanufactured products ($\lambda$)
The distributor's payoff versus carbon emission discount factor of remanufactured products ($\lambda$)
The OEM's payoff versus carbon emission discount factor of remanufactured products ($\lambda$)
The acquisition price versus the reward-penalty intensity of collection activities ($m$)
The distributor's profit versus the reward-penalty intensity of collection activities ($m$)
The OEM's payoff versus the reward-penalty intensity of collection activities ($m$)
A brief literature review
 Typical literature Closed-loop supply chain Technology licensing Carbon emission Government policy Savaskan et al. (2004) $\surd$ Atasu et al. (2008) $\surd$ Örsdemir et al. (2014) $\surd$ Mitra and Webster (2008) $\surd$ $\surd$ Esenduran et al. (2016) $\surd$ $\surd$ Oraiopoulos et al. (2012) $\surd$ $\surd$ Hong et al. (2017) $\surd$ $\surd$ Huang and Wang (2017) $\surd$ $\surd$ Wang et al. (2017) $\surd$ $\surd$ Zhang et al. (2021) $\surd$ $\surd$ Alegoz et al. (2021) $\surd$ $\surd$ $\surd$ Chen et al. (2020) $\surd$ $\surd$ $\surd$ This paper $\surd$ $\surd$ $\surd$ $\surd$
 Typical literature Closed-loop supply chain Technology licensing Carbon emission Government policy Savaskan et al. (2004) $\surd$ Atasu et al. (2008) $\surd$ Örsdemir et al. (2014) $\surd$ Mitra and Webster (2008) $\surd$ $\surd$ Esenduran et al. (2016) $\surd$ $\surd$ Oraiopoulos et al. (2012) $\surd$ $\surd$ Hong et al. (2017) $\surd$ $\surd$ Huang and Wang (2017) $\surd$ $\surd$ Wang et al. (2017) $\surd$ $\surd$ Zhang et al. (2021) $\surd$ $\surd$ Alegoz et al. (2021) $\surd$ $\surd$ $\surd$ Chen et al. (2020) $\surd$ $\surd$ $\surd$ This paper $\surd$ $\surd$ $\surd$ $\surd$
Parameters and definitions
 Notation Definition $w$ The unit wholesale price $p$ The unit retail price $c_n,c_r$ The average unit cost of manufacturing new products and returned products by the manufacturer, respectively $c_d,c_t$ The average unit cost of manufacturing returned products by the distributor and the third party, respectively $S_1,S_2,S_3$ The average unit cost savings from remanufacturing by the manufacturer, the distributor and the third party, respectively $r$ The average acquisition price for a used product from consumers $D$ The market demand function $a$ The market size $b$ Sensitivity of consumers to the retail price $G$ The supply function of used products $Q$ The target collection quantity set by government $m$ The reward-penalty intensity of collection quantity established by government $k$ The reward-penalty coefficient of carbon emission set by government $e_0$ The upper limit of total carbon emissions $F$ The unit licensing fee given by the distributor/ the third party to the manufacturer $\Pi$ Profit
 Notation Definition $w$ The unit wholesale price $p$ The unit retail price $c_n,c_r$ The average unit cost of manufacturing new products and returned products by the manufacturer, respectively $c_d,c_t$ The average unit cost of manufacturing returned products by the distributor and the third party, respectively $S_1,S_2,S_3$ The average unit cost savings from remanufacturing by the manufacturer, the distributor and the third party, respectively $r$ The average acquisition price for a used product from consumers $D$ The market demand function $a$ The market size $b$ Sensitivity of consumers to the retail price $G$ The supply function of used products $Q$ The target collection quantity set by government $m$ The reward-penalty intensity of collection quantity established by government $k$ The reward-penalty coefficient of carbon emission set by government $e_0$ The upper limit of total carbon emissions $F$ The unit licensing fee given by the distributor/ the third party to the manufacturer $\Pi$ Profit
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