Selling Assortments of Used Products to Third-Party Remanufacturers

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Abstract

This paper analyzes the business-to-business transactions in which a supplier sells assortments of used products to third-party remanufacturers. The supplier offers used products in different quality conditions, called grades. We model this buyer–supplier transaction as a Stackelberg game in which the buyer chooses his optimal purchase quantity of various grades, and the supplier chooses the optimal assortment and the prices of the grades in the assortment anticipating buyer’s behavior. We first develop an analytically tractable solution to the buyer’s and supplier’s problems. Subsequently, we show several structural properties of the optimal assortment offered by the supplier, including (i) the optimal prices set by the supplier are such that high quality grades have a higher profit margin for the buyer; and (ii) the grades in the optimal assortment constitute a convex hull of the remanufacturing and acquisition costs. We also extend the results to the case when the supplier’s acquisition costs are marginally increasing in the quantity acquired.

Original languageEnglish (US)
Pages (from-to)1792-1817
Number of pages26
JournalProduction and Operations Management
Volume28
Issue number7
DOIs
Publication statusPublished - Jul 1 2019

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All Science Journal Classification (ASJC) codes

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

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