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On the robustness of the consumer homogeneity assumption with respect to the discount factor for remanufactured products

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  • Kleber, Rainer
  • Reimann, Marc
  • Souza, Gilvan C.
  • Zhang, Weihua

Abstract

The strategic closed-loop supply chain (CLSC) literature makes the assumption that a consumer’s willingness-to-pay (WTP) for a remanufactured product is a fraction of his/her WTP for the corresponding new product, and this fraction, called discount factor, is assumed to be constant among consumers. Recent empirical research challenges this assumption, by showing that there is considerable variability in discount factors among consumers. This paper considers a complex model in the CLSC literature: strategic remanufacturing under quality choice, and compares its solution under constant discount factors with the solution that assumes a probability distribution for the discount factors (which is analytically intractable and must be obtained numerically). We consider quality choice and remanufacturing for both monopoly and competitive cases. Overall, we find remarkable consistency between the results of the constant and variable discount factor models. Thus, we make a convincing argument that the constant discount factor assumption is robust and can be used due to its tractability.

Suggested Citation

  • Kleber, Rainer & Reimann, Marc & Souza, Gilvan C. & Zhang, Weihua, 2018. "On the robustness of the consumer homogeneity assumption with respect to the discount factor for remanufactured products," European Journal of Operational Research, Elsevier, vol. 269(3), pages 1027-1040.
    • Handle: RePEc:eee:ejores:v:269:y:2018:i:3:p:1027-1040
    DOI: 10.1016/j.ejor.2018.02.052
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    2. Patricia van Loon & Luk N. Van Wassenhove & Ales Mihelic, 2022. "Designing a circular business strategy: 7 years of evolution at a large washing machine manufacturer," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 1030-1041, March.
    3. Minjung Kwak, 2021. "Monte Carlo Simulation of the Effect of Heterogeneous Too-Cheap Prices on the Average Price Preference for Remanufactured Products," Sustainability, MDPI, vol. 13(17), pages 1-11, August.
    4. Shushu Xie & Yingxue Zhao & Lin Zhao & Xingyuan He, 2024. "Do Online Reviews Always Incentivise Remanufacturers to Improve Quality in a Competitive Environment?," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 26(67), pages 903-903, August.
    5. Yang, Feng & Wang, Manman & Ang, Sheng, 2021. "Optimal remanufacturing decisions in supply chains considering consumers’ anticipated regret and power structures," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 148(C).
    6. Du, Hang & Wei, Lai & Zhu, Qinghua, 2023. "Competition of consumables’ original brand manufacturers and remanufacturers considering the entry of compatible manufacturers," European Journal of Operational Research, Elsevier, vol. 306(2), pages 679-692.
    7. Qiao, Haike & Su, Qin, 2021. "Distribution channel and licensing strategy choice considering consumer online reviews in a closed-loop supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 151(C).
    8. Ehsan Shekarian & Simme Douwe Flapper, 2021. "Analyzing the Structure of Closed-Loop Supply Chains: A Game Theory Perspective," Sustainability, MDPI, vol. 13(3), pages 1-32, January.
    9. Zhixin Chen & Shijian Hong & Xiang Ji & Ruixia Shi & Jie Wu, 2022. "Refurbished products and supply chain incentives," Annals of Operations Research, Springer, vol. 310(1), pages 27-47, March.
    10. Borenich, Andrea & Dickbauer, Yanick & Reimann, Marc & Souza, Gilvan C., 2020. "Should a manufacturer sell refurbished returns on the secondary market to incentivize retailers to reduce consumer returns?," European Journal of Operational Research, Elsevier, vol. 282(2), pages 569-579.
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