Management Science and Information Systems' Seminar (2015-04)

Topic:Trade-in Remanufacturing, Strategic Customer Behavior, and Government Subsidies

Speaker:Fuqiang Zhang

Affiliation: Olin Business School, Washington University

Time:Friday, 5 June, 4:00-6:00 p.m

Location:Room 217, Guanghua Building 2

Abstract：This paper studies the impact of remanufacturing and the associated trade-in program on a firm's profit, the environment, and the social welfare. The firm sells a product in two periods, and the used products from the first period can be recycled for remanufacturing in the second period. To collect used products, the firm o?ers a trade-in program that allows repeat customers to trade in used products for upgraded ones at a discounted price. Customers are forward-looking and choose the optimal timing to purchase the product. We analyze the game between the firm and the customers and report several major findings. First, trade-in remanufacturing essentially provides early purchase rewards to customers, so it helps mitigate strategic customer behavior and may significantly improve the firm's profit. Second, contrary to the commonly-held belief, the adoption of remanufacturing may have a negative impact on the environment. This is because remanufacturing leads to higher production quantity (higher quantity means greater environmental impact), which may outweigh the environmental benefit of remanufacturing. Similarly, some widely applied government subsidies for promoting remanufactured products may also aggravate the detrimental impact of production on the environment. Finally, we study how a social planner (e.g., the government) should design the incentive mechanism to maximize social welfare. We find that the socially optimal outcome can be achieved by using a simple linear subsidy and tax scheme.

Bio. :

PhD 2004, University of Pennsylvania, The Wharton School;

MS 2001, University of Rochester, Simon School of Business;

Master of Engineering 1999, National University of Singapore;

Bachelor of Engineering 1995, Xi'an Jiao Tong University

Selected Publications:

"On the Value of Commitment and Availability Guarantees When Selling to Strategic Consumers",Management Science, Issue 5, 713-726, with X. Su, 2009

"Dynamic Capacity Management with Substitution",Operations Research, Issue 3, 671-684, with R. Shumsky, 2009

"Obtaining Fast Delivery in a Queueing System via Performance-Based Allocation of Demand",Management Science, Issue 3, 408-420, with G. Cachon, 2007

"Procuring Fast Delivery: Sole-sourcing with Information Asymmetry",Management Science, Issue 6, 881-896, with G. Cachon, 2006

"Competition, Cooperation and Information Sharing in a Two-echelon Assembly System",Manufacturing & Service Operations Management, Issue 3, 273-291, 2006

Your participation is warmly welcomed!