Life-Cycle Pricing for Remanufacturable Products

Product remanufacturing is increasingly being recognized as a cost efficient way of supplying new products to consumers. Remanufactured products are typically upgraded to the quality standards of new products, so that they can be sold in new product markets. In this paper, we consider product categories with no distinction between a remanufactured and a manufactured product, and refer to the distribution systems which use a combination of manufacturing and remanufacturing as closed-loop supply chains. Single-use cameras, copy and print cartridges, high volume printers, copiers and cellular phones are examples to some of the remanufactured products. Careful planning and coordination of manufacturing and remanufacturing activities throughout the life cycle of a product is central to establishing economically viable closed-loop supply chains (Guide 2001). In a dynamic setting, this paper investigates the new product pricing policy of a monopolist, which jointly optimizes the revenues from new product sales and the cost savings from product remanufacturing. To this end, the paper develops an accurate characterization of the new product demand dynamics as well as the supply dynamics of used products.