Good Intention, Bad Result? Government Subsidies for Green Consumerism in the Remanufacturing Industry

The green ecological property is increasingly recognized as a sustainable option in remanufacturing. In practice, despite the environmental concerns expressed by consumers, the growth of the remanufacturing industry falls short of expectations, largely due to the fact that, although remanufacturing conserves costs and is beneficial to our environment, it may not be a profitable option for OEMs, a major barrier in its appearance to green consumers. Many researchers have proposed that environmental groups and similar entities should provide necessary subsidies to encourage green consumerism and improve the profitability of the remanufacturing industry. In this paper, we intend to address how the subsidy policy on green consumerism impacts an OEM’s incentives in remanufacturing; more specifically, we develop two theoretical models: Model N, in which the OEM does not undertake remanufacturing, and Model R, in which the OEM does undertake remanufacturing under the subsidy policy for encouraging green consumerism. In addition to confirming the traditional wisdom that the subsidy policy encourages the remanufacturing industry, our analysis surprisingly reveals that, if a few consumers characterize green consumerism, the aggressive subsidy policy may potentially result in a cannibalization problem, in which remanufacturing hurts the OEM’s overall profits. Therefore, the government and environmental protection agencies need to fully consider the characteristics of the industry to avoid a “good intention, bad result” situation.